Drawing Up Partnership Agreement
You are going into business with one or more partners. But what would you do if one of your partners died, became disabled or left the business? If you and your partners have not entered into a partnership agreement in anticipation of such eventualities, a resulting dispute could affect your partnership and even your business. You should therefore prepare for the unexpected and draw up a partnership agreement.
The purpose of a partnership agreement is to prevent disputes by determining the rights, responsibilities and powers of each partner.
The agreement anticipates certain situations and their impact on management of the business and determines in advance what measures will be taken in the event they occur. If a partner dies or wishes to sell his shares, or if there is a disagreement between two partners, you will know how to settle the matter quickly.
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What is a partnership agreement? |
A partnership agreement establishes such things as:
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the rights and obligations of each partner, particularly regarding finances; |
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the tasks allocated to the partners;
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the measures applicable in the event of a partner’s departure or death;
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the measures applicable in the event of bankruptcy;
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and includes all relevant information concerning management of the business, such as the composition of the board of directors and the purchase and sale of shares.
Think about incorporating a non-competition clause in your agreement. It will prevent a former partner from competing with you as a result of experience acquired in your business.
As is the case for any other type of contract, we recommend that you consult a legal advisor to draw up an agreement that meets your needs. Your legal advisor will ensure that the provisions of the agreement are sufficiently clear and that they are properly set out so that you can avoid any potential disagreement.
This information is presented for information purposes only and should not be considered to be legal or financial advice. For further information, contact a legal or financial advisor.
Purchasing Life Insurance to Protect Your Assets
Most of the time, the success of a small or medium-sized business depends on a small number of shareholders (one, two or three) or on one key employee. The death of a key partner could be very damaging to the continuity of your business activities and very detrimental financially.
To protect yourself against financial problems, it is important to take out universal, term or permanent life insurance.
Life insurance can meet your requirements for:
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Financing a shareholders’ agreement
Taking out term life insurance to finance a shareholders’ agreement ensures tax-free payment of the capital required to purchase the shares of a shareholder who dies. The death benefit therefore prevents you from having to take out a loan to purchase these shares or to liquidate the assets of the business to settle the debts. |
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Insuring a key person
Taking out term life insurance on a person who holds a key position increases the financial security of a business. The life insurance benefit paid following the death of a key employee therefore covers the temporary revenue losses entailed while a replacement is being recruited and trained. |
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Taking out collateral insurance
Banks or creditors may require you to take out collateral insurance to secure the repayment of a loan or line of credit in the event that one of the owners dies. |
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Transferring the family business to the next generation
Term life insurance provides the necessary funds to cover the latent tax bill that comes when a family business is transferred to the children after the owner dies. |
This information is presented for information purposes only and should not be considered to be legal or financial advice. For further information, contact a legal or financial advisor.
