There are countless thousands of “Business Partnerships” in the UK ranging from two people running a craft shop to multi million pound accountancy firms.
Generally the larger organisations will be set up on very well defined terms set out in a formal partnership agreement, but many of the smaller ones simply don’t have any legal agreement in place at all.
So what happens if a partner dies? Unless stated in a partnership agreement that it must continue, a partnership dissolves on the death of a partner, so if there are only perhaps two or three partners involved, this can be very awkward as the “share” of the partnership of the deceased would pass to his or her beneficiary. They in turn may have no interest or experience in the business and yet want their financial rewards whether that means buying them out or them becoming a sleeping partner.
The same applies if a partner becomes too ill to carry on their interest in the business and either wants their money out or simply becomes a passenger.
Partnership Protection Insurance is a way of making sure that the surviving partner will have the option to carry on with the business should they wish and for funds to be available to recompense either the estate of the deceased partner or the partner him or herself, should he or she survive a serious illness.
Option Agreements. It is very important to make sure that these are set up correctly as they give different people the right to determine when “shares” in the partnership have to be exchanged for the insurance payout. They may include Cross (or Double) Option, Single Option, Buy and Sell Agreements, and Automatic Accrual. At Ashwood Law our advisers will aim to ensure that your business is well protected and can continue in the most difficult of circumstances.
They will also be able to explain the taxation issues that will need to be considered as well as the use of any suitable trusts.
And remember, the values of businesses change so it is important to make sure that these plans are reviewed on a regular basis
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Ashwood Law LLP,
Ashwood Law House,
Newton Road, Heather,
Leicestershire LE67 2RD