As a partner or co-owner of a business, you’ve no doubt spent countless years building up value in your business.
Generally, a lot of thought has gone into the shareholder/partnership agreement. This, amongst other things sets out how decisions are made, responsibilities dividend and dividends paid. They’ll also cover off disagreements and how ultimately a shareholder/partner can exit the business.
This is all good stuff to have in an agreement for your business. However, something which is often overlooked is how the untimely (and unfortunate) death of a business partner will be handled.
We recently bought on a new customer who had recently been through this exact situation (and thanks to them for letting me share their story).
John had died, leaving the surviving business partner Steve to run the business alone. The company had key man insurance over both partners.
On John’s death, the company received a lump sum payout on the key man insurance. Now this was all well and good, and helped the company to keep the lights on during the darker days after John’s death. Eventually, it also helped Steve to hire someone else to do the day-to-day work previously done by John.
When the insurance was put in place, they never thought about John’s shares in the business. These shares passed on to John’s wife, who wasn’t at all interested in the business and wanted to sell them. Steve didn’t have the resources available to buy the shares from John’s wife, and is something we’re still working through now.
This situation could have been avoided if John and Steve’s had talked about this scenario when putting the key man insurance in place. Suffice to say, John was none-too-thrilled with the insurance advisor or his previous accountant.
If you’d like to discuss your situation please contact us or call Hamish Mexted on 04 212 4977.
Disclaimer: We’re not insurance advisors so definitely won’t give you a hard sell. We also don’t get kick backs, commissions or anything similar from insurance advisors so it’s no skin off our nose if you want to talk it through without actually buying insurance.