Denise Saunders
Shareholder & Partnership Protection
In most partnerships there is a Partnership Agreement which will stipulate what will happen to your share of the business should you die prematurely, this is also covered in a Shareholder Agreement. Businesses then usually arrange life cover to insure they have the funds available to buy the deceased persons share, should the worse happen. If these plans are not in place the business may end up with a member of the deceased family taking over, whether they like it or not.
What may be missing is what will happen should one of the partners suffer a stroke, heart attack or other serious illness. How would the business buy out your interests if you felt unable to continue?
Death and long term absence of a partner or shareholder can cause serious financial and control problems but arrangements can be made to ensure the business is able to continue without a cash injection from the other Partner or Shareholders. More importantly, the arrangement can provide a prompt payment to you, or your estate.
The Answer
Ensure that your Partnership or Shareholder agreement includes clauses which deal with the issue of a long term or permanent absence of one of the partners or shareholders caused by a reason other than death. The Partners or shareholders should also have a cross option agreement. This gives the surviving partners the option of buying your share of the business and the right for your estate to sell your share to the business.
The Partners or Shareholders would then need a Life and Critical Illness insurance policy on the lives of the partners or shareholders which will provide funds to buy out the share of the business of the partner or shareholder leaving the practice.
If you would like us to review your existing arrangements or if you are interested how to fund an enforced exit from your business, please contact us for a quote or further information.