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Partnership/Shareholder Protection

business protection

If your business partner, or a major shareholder died last week, who would you be in business with today - their spouse? their children? an accountant? a lawyer - a total stranger?


Running a business is demanding enough when you're all alive and healthy.

Continuity of the business enterprise is at risk in the event of an untimely death or serious disablement of a shareholder.

Think about it...
 

Do you want to be in business with "Your deceased partner's widow's second husband's lawyer". etc?


An Insurance funded Buy/Sell Agreement is a means of creating cash exactly when required for the ongoing shareholder to purchase a deceased, or seriously disabled shareholder's interest in the business.

A Buy/Sell Agreement ensures that the cash is used as intended.  The document can include an agreed price, or how the price is to be determined.

Shareholder/Partnership protection is designed to provide a predictable outcome in the event of a crisis, and the smooth handover of control and ownership, on the death or disablement of a shareholder.
  • Control of the business is retained by those in the business.

  • The family of the deceased/disabled are treated fairly.

 
For a FREE, no-obligation, personal and confidential review, and quotes on your partnership & shareholder protection, CLICK HERE

Upon the death, disability or major health trauma of one of several business owners who has been active in operating the business, the remaining owners must accept one these alternatives.

 
1. Buy out the deceased/disabled Owner's interest

The problems here are:
  • Determining the price.
  • Raising the money.
  • Agreeing terms of payment.
  • Strained negotiations and legal delays may make it difficult to reach a mutually acceptable position.
  • If there are no other buyers, the parties may feel that they are paying too much or receiving too little respectively.
  • What will happen if the deceased/disabled owner has given a Personal Guarantee to support a business loan?

 

2. Take the deceased/disabled Owner's representatives into the business

The problems here are:
  • Will they support or oppose the decisions of the remaining Shareholders?
  • Will they want to change dividend policy or existing remuneration?
  • Will they be qualified to assume their share of business responsibilities?
  • What if some are minors represented by a Guardian?
  • Do they have the resources and willingness to support the business if additional capital is required?

 

3. Sell the interest to the deceased/disabled Owner's representatives

This will not be a practical option unless:
  • They are qualified to operate the business
  • The remaining owners are willing to sell and either retire for the business or remain as employees.

Additionally there are still the problems of:

  • Determining the price.
  • Raising the money.
  • Agreeing the terms of payment.
  • Supporting business debt with Personal Guarantees and assets.

 

4. Take outsiders into the business to purchase the deceased/disabled Owner's interest

The problems here are:
  • Outsiders may not be interested, particularly if it is a minority interest
  • Will they want to change dividend policy or existing remuneration?
  • Will they be qualified to assume their share of business responsibilities?
  • Do they have the resources and willingness to support the business if additional capital is required?

Additionally there are still the problems of:

  • Determining the price.
  • Raising the money.
  • Agreeing terms of payment.

 

5. Liquidate the business or sell to a third party

The problems here are:
  • Will the remaining Owners and the deceased/disabled Owner's representatives agree on the value?
  • If the sale or liquidation is delayed there may not be sufficient cash to pay all debts. This may result in the forced sale of personal assets to meet personal guarantees.
  • Unless all parties can agree, this alternative may be forced on them. A business in liquidation or facing a forced sale has a much lower value that that of a going concern.
 

"A funded business continuation (buy/sell) agreement is the only effective solution"


Copyright Graeme Lindsay, 2003


For a FREE, no-obligation, personal and confidential review, and quotes on your partnership & shareholder protection, CLICK HERE

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Futureproof Life is a family owned business specialising in risk management & lifestyle protection solutions for businesses & families.
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Phone 09 413 6070