Review for Accountants & Financial Planners
March, 2015

What's in your business partner's Will?

Two minute scenarios...

You might think it's none of your business. Well yes, and no. If you have a business partner wouldn't you like to know who your new business partner will be? Might that be an issue for you?

Scenario One... Andrew and Joe

Scenario: Andrew and Joe are in their 50's and have been running a business together for over 15 years. They get along very well. Andrew has been married for 25 years and Joe has recently re-married.

What's the issue? Joe happens to mention he and his new wife, Sasha, have just had their Wills done. This prompts Andrew to wonder what would happen to Joe's share in the business if he was to die. Could he end up with a new business partner that he hasn't chosen?

Solutions: Joe and Andrew need to discuss what they want to have happen if one of them was to die. One solution is to each take out life (and usually TPD) insurance so the departing partner gets compensated for the equity value. They then need a buy sell agreement linked to the insurance policies to guarantee the surviving partner then gets full ownership.

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Scenario Two... Andrew and Sasha

Scenario: Joe had a stroke and died. The life policy, which had been taken out as part of a business succession plan, was paid to his estate.

What's the issue? Joe and Andrew had not organised the buy sell agreement. They knew what 'the deal' was to be. However, Sasha didn't know about 'the deal' and there's nothing in writing. She now wants Andrew to buy the business shares she inherited.

Solutions: Andrew will need to start negotiating with Sasha in order to buy Joe's shares. Even though they had both taken out insurance for this very purpose, Andrew will need to pay Sasha for half the business value if he wants 100% ownership. Where will he get the money? He is not happy.

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Scenario Three... Sasha

Scenario: Sasha doesn't want to sell her share in the business to Andrew. She is happy to keep getting a share in the profit.

What's the issue? Sasha is entitled to half the profit. She doesn't want to work in the business and is happy for Andrew to take a wage for his time, but she still wants to take her profit share. Andrew is still not happy.

Solutions: Sasha would say no solution is needed. Andrew would say he and Joe  should have organised a buy sell agreement.

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More information for clients

Please feel free to forward this insight on Buy Sell Agreements to your clients. Or if they would like to discuss how we can help them please call 03 8621 9000 or email with their details and we will contact them, obligation free.

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