A partnership can be an efficient method of pooling resources to the fiscal benefit of all concerned. However, it brings with it responsibilities and a chance of possible financial burden, especially when one of the partners dies, retires or becomes disabled. For a partner, his share in the business is likely to be his greatest financial backup so he needs to take steps to protect it, not only for the good of his family but also for the benefit of the other partners in order to help ensure the succession of the business.
In the event of the demise of a partner, the business assets and the bank accounts will be frozen until a proper succession of the dead partner is established, and the other partners will also lest with no access to the bank account or assets of the company. What happens to the value of the business then? The value of the business diminishes considerably. This causes a huge loss to the existing partners as well as the dead partner’s family. It can cause immediate financial hardship for the remaining partners and maybe even loss of control of the business. In essence, the death of a partner can potentially jeopardize the future of your business and can have major implications for the remaining partners.
There is a very real possibility that your business will suffer the loss of a partner. The risk of loss of a partner through death or maybe a lot higher than you think.
2. Pay yourself first : As soon as you are paid, split the money and put yourself on top of the queue. By paying yourself first, you get the satisfaction of saving something for a rainy day (or your retirement). If your salary gets deposited each month into your bank account, put some of that into a separate account which you won’t use for weekly groceries or personal expenses. You can do a split; say 50/50, 60/40, 70/30, 80/20 per cent for expenses/savings, whichever suits you best. What’s important is that you set a personal target and stick to it.
Statistics show that 1 in 4 people die before age 60.
Don’t predict the Future…. Protect it……
Business Protection Needs and Solutions
The business protection needs for partnerships are twofold: 1) Ensuring that, when a partner leaves through any cause, the remaining partners are able to continue the business, whilst maintaining control, and without undue financial strain. 2) Ensuring that when a partner leaves the business he or his family are adequately provided for. These problems may arise when a partner dies. When a partner dies, the deceased's share of the business will normally form part of his estate for the benefit of his family. Whilst some companies may have restrictions within their memorandum and articles of association limiting share ownership to certain individuals and determining who has the initial right to acquire shares, it will be assumed that the shares pass in the first instance to the family. The family then has two alternatives:
1) A member of the family could take over the deceased's position as a partner or appoint someone to act on their behalf. 2) Realize the value of the share by selling it. Both these alternatives can present problems to the family and those remaining in the business. Under alternative (i) a member of the family may not want to become involved in the business or may not have the right experience or qualifications to do the job. The family could also have a problem finding someone who would be willing and able to act on their behalf in the business. For those remaining in the business, alternative (i) may not be attractive - they might, understandably, be reluctant to invite a member of the family to become a partner or a member of the Board, especially if that person does not have the relevant experience. This would particularly apply if the family had