Partnerships are made in Heaven; But not all Partners survive the ride
through HELL.
– Sanjay Tolani
What is partnership insurance and who
needs it?
Many companies
are built on the symbiotic relationship between partners, therefore protecting
the value of that partnership is the key to success. Unfortunately, many are
unaware on how to protect this value in the event of a mishap like death of a
partner or loss of income due to an illness.
The idea is
to protect each other’s interest by purchasing an insurance plan; where the
company gets enough liquidity to be able to buy out the share from the deceased
partner’s family or provide liquidity to hire managers to continue taking care
of the responsibility of an ill partner. This liquidity will protect the
company, the partnership and the family in maintaining the status quo.
Investors
who invest into a running business, may want to protect their investment, by
insuring the working partner, as in the event of an unfortunate illness or
death the business would be without a captain to steer the boat away from the
rough waters; and could cause big losses to the investor.
What can you include in your plan?
The plan is designed
according to a partnerships need. For example, it can include an income
protection cover; in the event of a major illness; a partner is unable to work
for a long period of time, the productivity of the company may significantly be
reduced. The company would be provided with a lump sum amount of cash to
sustain this “Loss of Income”; thereby buying time for the partner to recover.
It can also
include the involvement of a family member of the deceased partner in the
business as a part of the inheritance and succession plan, or hiring a new
manager to assist with the responsibilities.
A well
designed plan also needs to be reviewed with changing circumstance, changes in
responsibilities and changes in succession.
A Real Life Case Study
Company ABC
Ltd. had 3 partners; John, Jim and Jack. The three partners shared different responsibilities
in the business and held equal shares. The Auditors had valued the company at
US$ 15 Million.
Unfortunately,
when John passed away; the partners had to decide what the future of the
company would be. Would John’s family continue to get profits in equal share as
the partners? Who will undertake the burden of John’s responsibility? If the
partners want to buy out John’s shares; where will the liquidity of US$ 5
Million come from? Will the wife sell the shares?
Partnership
insurance opens up many ways to handle such a situation. Discussing a
succession plan, inheritance and liquidity to buy out shares can all be covered
in the Partnership Insurance Document.
If you do
care about the future of the business you are building, ensure to insure the
partnership. Please share this
information with everyone around you.
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