Partnership

Not all businesses are structured as a company – many operate as partnerships.

There are two ways of protecting a business if it is a partnership – key person protection or partnership protection.

Key person insurance is loss of profits insurance that provides a company with the proceeds from an insurance policy so it can continue trading if a key person dies or becomes critically ill.

The company can decide how to use the proceeds, which could include employing a permanent replacement if a key person dies or a temporary replacement if a critically ill key person intends to return to work. It can also use them to repay a company loan.

Under partnership protection, if a partner dies or becomes critically ill a cash sum will become available so that the other partners can buy their interest. This ensures minimum disruption to the partnership and the critically ill partner or the personal representatives of the deceased partner will receive a cash amount equivalent to the value of their interest.

The level of cover should be equal to that interest, which will include:

• the capital value of the partner’s share in the business (including property) and including the partner’s capital account
• the forecast value of the undistributed profits
• the value of goodwill – if it appears in the account as an asset

There are different ways of achieving partnership protection and to see if you would benefit, please contact us for a free initial consultation.