PARTNERSHIP INSURANCE

Partnership protection is concerned with maintaining and continuing the partnership in the event of one or more of the partners ceasing to act as a partner, due to illness, injury or death.

It is essential that partners make sure that in the event of the death of one of them, the remainder are in a position to buy out the deceased’s share in the partnership from the estate. The first step in securing this situation is to draw up a formal partnership agreement specifying what is to happen in the event of death, and giving the surviving partners the legal right to buy the deceased’s share.

Similar considerations apply on the retirement or ill health of a partner, or withdrawal from the partnership for any other reason.

A partnership is formed whenever two or more people are in business together where they choose not to form a limited company. Partners share in the risk of the operation and in the capital, goodwill and profits, so it is important, although not obligatory, that a formal partnership agreement is in place.

The partnership agreement will prevent the partnership from being dissolved automatically in the event of death, retirement or resignation.

In the event of death, for example, the deceased’s share of the business would pass into the estate. This may pose problems as the partner’s dependants generally will neither be willing nor able to contribute to the business, and indeed may wish to withdraw their share of the capital.

Planning is essential, therefore, to ensure the partnership share passes to the surviving partners for suitable value.

Life assurance policies are an ideal planning tool in these circumstances; to provide funds to be available and in the right hands and enable the necessary cash to be used to purchase the partnership share.

Who owns the insurance?

Ownership of the insurance is critical. It will can determine how much tax is paid, if any. It will also assist in allowing the orderly transfer of shares. There are many options and many issues to consider before deciding on who or what will own the insurance.