Do not let the future of your small business at risk

Adam and Bob were best friends since high school. They shared an apartment in the university, specialized in the same field, and even went to work for the same company. When they were in their mid 30's they came up with a great idea for a product that would become very popular and the two decided to come out with their own business. They decided to form a partnership with each owning 50%. The company soon began to prosper.
Two weeks after his 47th birthday, Adam apparently healthy suffered a massive heart attack and died. At his death, Adam's ownership in the company was transferred to his wife, Cathy. Having known Bob for many years, Cathy has left the company's control for himself and the company continued to prosper.

Two years later, Cathy met Donald and after a whirlwind romance the two were married. Donald became very interested in the stock in the late husband of Cathy business. Finally, it would start to have ideas about how society could be better managed. Although he had no experience to support his ideas, be a good wife, Cathy would make these suggestions to Bob. The relationship between the partners started suffering from this tension.
Shortly after the third anniversary of Donald and Cathy, Cathy was diagnosed with cancer and soon she too died. As many, Cathy had failed to properly plan its future and under community property laws transferred his property to Donald to his death. Donald was now owns 50% of the company with equal authority in the way the company was run.

Bob Donald and rarely agree on the operation of the company and although years of experience and knowledge were far superior to Donald, Bob was unable to override Donald's ideas . Time spent on these disagreements, dissatisfied customers and installation costs would all prove too much for the company and on the 20th anniversary of Adam and Bob opening the doors of the company, they would be closed for good as the owners declared bankruptcy.

A simple solution

A very simple strategy, but often overlooked would have prevented this unfortunate end to the already happy story. A repurchase agreement is a legally binding clause in a partnership agreement that controls what happens if one of the spouses dies or has to leave the partnership otherwise.

Typically, the agreement sets a price and give the surviving partner the option to purchase from the deceased estate of their partner. In the story above, this would have left Bob just buy the participation of Adam, enabling it to maintain full control of the company and to avoid other problems.

This strategy is reflected in difficulty at the time of death of the partner if the surviving partner does not have sufficient funds to make the purchase. Keyperson life insurance helps to solve this problem. With this product, the company purchases a life insurance policy equal to the agreement on the purchase price on the life of each partner with the other partner listed as the beneficiary. The provision of insurance death is then used to pay succession and transfer of ownership of the deceased partner.

With the company listed as the owner of the policy, they are treated as assets and business premiums of eligible business expenses. This allows partners to successfully plan for the future of the business while benefiting from valuable tax benefits as well.