What happens if your business partner dies?

By February 24, 2016September 10th, 2018Business Planning & Strategy, General Business, Tax


You’ve worked hard for many years to build your empire, then something dreadful happens…

Whilst unpleasant, it is important to consider how the business will go on in the event that you, or one of your business partners, is no longer able to work. This could be due to permanent incapacity from injury or illness, or death.

First issue to consider is what skills each of you bring to the table and how would you go about replacing those skills? This is where succession planning comes into play. Some businesses are designed to scale quickly and be sold (e.g. SaaS companies), whilst the vast majority of SME businesses will grow at a reasonable rate and be sold on to key staff members over time or to a larger competitor. Assuming you fall into the second category, you should be identifying key staff members who have the necessary skills and attitude, and slowly train them to take over your position. This has several benefits outside of easy handover in the event of your untimely demise – mostly it means you can be less present in the business whilst the job still gets done!

Second, you’re going to want to consider your insurance options. You may want to consider a simple cash injection to the business so that any disruption caused by an unexpected exit is minimised. The cash could come from a key man policy held for each of the owners in the name of the business and be used to cover recruitment fees, possible loss of clients, etc. Something to cover all  the expenses you can reasonably expect if one of the owners suddenly departs.

Another insurance option is having buy/sell cover over each of the owners so that if needed, the remaining shareholders can buy out the family of the deceased/incapacitated. This means the family left behind gets cash rather than shares. This is great because the family may find it very difficult to sell private company shares on the open market (indeed the shareholders agreement may forbid this anyway) and it means the remaining shareholders are not left scrabbling for the large amounts of money needed to pay for the deceased’s shares. This insurance can take several formats, either it could be a life insurance policy held by each shareholder with the payout going to the remaining business partner(s), or it could be a policy in the name of the company that can be used to cash flow a share buyback. Either way, make sure you get the right advice before it’s too late.

The above are just a few of the things that all business owners should consider just in case the unthinkable happens and leaves them or their business partner unable able to work.

Generate has a long standing relationship with the team over at Malton Road Advisory for all things insurance. Get in touch with them if you’d like to discuss insurance options for your business.

As for assistance with succession planning or any other business matter, please get in touch with us today, we’d love to help.