Taking Account
  • Taking Account

Successful partnerships plan for succession

Money Wise spring 2007

If you are a member of a partnership, you know how important the individual partners are to the business. Each brings their own skills and viewpoints and together they set the way in which the business operates. Remove one partner from the picture and the nature of the business changes and could become destabilised:

  • Some clients have a special relationship with one partner.
  • A partner may have specialist expertise that their colleagues cannot match.
  • A partner could be an important provider of capital for the business, capital that would have to be replaced.
  • A partner might be a guarantor for a business loan that would have to be renegotiated.

Even if all of your partners are currently committed to the business, there is always the risk of an involuntary departure as a result of illness or death. A large partnership might be able to cope with a sudden loss, but for a small partnership, the impact can be devastating. If your partnership has to be dissolved, there could also be unwelcome tax consequences alongside staff redundancy costs.

Some partnerships faced with such difficulties enter into shotgun mergers with former competitors. This keeps the partnership alive, but can lead to a lingering death unless both sets of partners see eye to eye. A better solution is to prepare in advance for the risk by arranging partnership insurance.

It makes sense to set up a simple partnership protection plan, which can provide the surviving partners with funds to cushion the business against the possible loss. And what is more:

  • If a partner dies, then the surviving partners will receive a lump sum that can help finance the purchase of the deceased partner’s interest.
  • If a partner has to retire through serious illness, then a lump sum payment is made to the other partners. The ill partner then has the choice of selling their interest or retaining it (which could have inheritance tax advantages).

The cost of providing this peace of mind is less than you may imagine. To find out just how little it can be, why not ask for a quotation today? After all, you can never be sure what tomorrow will bring.

Footnote: If you already have partnership insurance, make sure that it is reviewed regularly to keep it up to date.

Hilton Sharp & Clarke