Business partnerships

What would happen if your business partner became seriously ill or died unexpectedly? Would you want to be in partnership with their family? If not, would you be able to buy them out? Turning a dream into a going concern can keep you very busy but there are some questions worth taking the time to think about.

Working in partnership with someone is a great way to improve and expand a business because partners bring extra capital, skills, experience and labour. But if one of the partners is suddenly ‘gone’ you and the business are left in a vulnerable position. You are running the whole business but only taking half the profit because you only own half the business.

If extra private capital is available to settle up, that’s great, but unusual. Capital is rarely so accessible and few banks are interested in financing what is essentially ‘half’ a business.

My name is Glyn Lewis-Jones and not only have I been through this myself but, over the last 30 years, I’ve helped many partnerships to plan just in case something like this does happen to them.

Whenever the death or serious illness of one person is going to cause serious financial suffering to another person then insurance should be considered. Speak to an experienced financial adviser about your circumstances and they should be able to suggest a type of insurance and partnership agreement, so that you can, if needed, buy out your former partner’s family and keep your business alive.

Contact us to arrange a phone call with an experienced financial advisor about your own situation – it’s free and there are no obligations or catches.

Save money and get peace of mind – call 0800 908 907

Personal Stories

Names and identifying details have been changed to protect privacy.

“What? In business with my sister-in-law?”

Keith & Jeff were brothers who owned and ran a dairy farm together. Both were married with young families. They came to me originally for pension advice and when I started looking into their asset position we realized that both of them had made wills leaving their share of the farm back to their wives, neither of whom was involved in the day to day farming. Both women had young families to look after and couldn’t have taken over from their husbands if anything had happened to Jeff or Keith. When Keith realised, that if Jeff died, Jeff’s wife would own half the assets and also half the income and he would have to consult with her in the running of the farm he had a good laugh! Even more of a joke, if she re-married, there would be another outsider telling him what to do! The farm was profitable but neither of them would have been able to afford to buy the other out. So all we did was to get a partnership agreement drawn up, have their wills changed and they each took out insurance policies large enough to give the surviving brother the money to buy the rest of the farm, and to enable the widow to leave the farm with plenty of money. It’s lovely to help families who work together so closely. They felt they ‘owed’ me for sorting this out so, as well as being paid for the policies, I took home half a pig for the freezer!

Greg’s death nearly bankrupted the firm.

Allen & Grant ran an expanding accountancy practice, had taken on a lot of new staff and were actively looking for new business. Greg was a new employee that the firm had ‘head-hunted’ from another practice because of his contacts. He had a lot of potentially valuable clients that Allen & Grant were hoping could be brought into their practice and would help fund their expansion – indeed they took on extra staff because of this. So Greg was a very important employee. The practice took out $100,000 of ‘keyman’ life insurance cover on him which represented what Allen & Grant felt was a likely value to their practice of these extra clients over the next few years. Keyman insurance of this type is quite common either to cover key employees or business partners. Sadly Greg died a few months later in a car accident. None of his contacts had moved over to Allen & Grant and they incurred considerable costs because the costs of expanding were never matched by the planned increase in income. But the keyman policy paid out and got them through this difficult business period. Greg’s family were looked after by his own, personal life insurance policies of course.

Frequently Asked Questions

Why an insurance or critical illness policy?

Because having insurance in place means that losing your business partner won’t mean losing your business.

What’s it all about?

It’s all about creating a large sum of money to keep the survivor (and the business) in a strong position.

How does it work?

You and your business partner take advice from an experienced adviser, work out how much the survivor would need if anything did happen and, between you, choose a suitable policy and a partnership agreement to use with that policy.

What are the likely problems?

A challenge is to work out, in advance, what your course of action would be if one of you died or fell seriously ill. An experienced adviser will help you draw up a plan, take out insurance to cover it and keep it reviewed on a regular basis.