Business Continuity

Business Continuity

Business Continuity

Business Continuity

You and your partner always got along very well. You hadbeen quite good friends and for three years before you went into business together, you planned your partnership. However, your wives did not get along very well and while youand your partner went fishing quite often, you seldom got together with your wives. Will you want your partner's wifefor your partner or will your partner want your wife for hispartner? Unless you have taken steps to arrange with yourpartner, or with fellow stockholders if you operate as a corpo ration, a "buy-out" of the interest of the deceased partner, youare likely to be in the position of having your partner's wiferun the business with you, or worse still perhaps her executor or her lawyer. This type of situation has been the ruination ofmore than one business, since there are few wives who feelthat they could not operate then- husband's businesses moresuccessfully, whether their husbands operate newsstands orgiant corporations.

Look at it another way. How would your wife fare as thepartner of your partner? Has she agreed with all of yourbusiness decisions? Will you be secure in the feeling that herinterests are really being looked after, or was it your get upand go and your ability to make a decision which carried thebusiness, along with your hard work and your partner's hardwork?

Both you and your partner may be very good for eachother. You may complement each other wonderfully in business sense. You may even enjoy being together socially withyour wives. Suppose, however, that you are the inventivego-getter type, and your partner is the hard worker withoutany new ideas. Just as you and your partner complementedeach other in business, you and your wife may complement each other in marriage. Your wife, likewise, may be the patient type who will take your orders. If your wife is to be the partner of your business partner in the business which is to becarried on after your death, you may have two hard workerswithout anyone to make a decision. Bear hi mind that deathwill alter the total picture and it is the rare man indeed whohas such faith and confidence in another that he will trust thefate of his family to a business associate, however trustworthythat associate may be.

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In facing up to this problem, it is not enough to have anagreement for a buy-out of the interest of a deceased partner. That agreement should be funded, so the source of the moneynecessary to effectuate the agreement is assured. Life insur ance on the part of the respective partners or stockholders isthe best available method for funding the buy-out.

The buy-out itself may take one of two basic forms: either the respective partners will each carry life insurance on theirown lives for the benefit of others, or if a corporation isinvolved, the corporation will carry life insurance on each of the stockholders, redeeming the shares of a deceased stockholder in the event of his death.

In the first instance, where each partner carries life insurance on his own life for the benefit of the others, each partymust pay the premium with his own after-tax dollars. Wherecorporate redemption is involved, the corporation pays the premiums with its after-tax dollars but there is always thepossibility that when the proceeds reach the corporation at the death of the insured, creditors will have rights to the proceeds, or the redemption of outstanding stock will force up the valueof the stock in the hands of other shareholders, creating alikely capital gains situation on the subsequent sale. Eachconcern will have to answer this question for itself, advisedlywith the help of its attorney and its accountant.

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