Business Partner Insurance – A Story
Stan, Oliver and Wilma’s story
Stan (35) and Oliver (36), enter into a business together, ABC Electrical Pty Ltd. They are so busy setting up the business, they do not put a funded buy-sell agreement in place. They think there will be time to do that ‘sometime in the future’.
Oliver dies unexpectedly two years later. The business is worth $3,000,000 by this time. The business partners hadn’t made the time to arrange insurance or get their solicitor to write a buy-sell agreement, outlining the sale price and transfer terms.
Stan wants control of the company, as he will now do all the work and doesn’t want to share 50% of the profit with Oliver’s wife. Oliver’s wife, Wilma, agrees and is happy to sell the shares she inherited from Oliver.
They do not agree on a price – Wilma wants more that Stan wants to pay. Stan can’t get financing from the bank now that Oliver is gone, so Wilma looks to sell her share to an outside party. Outside parties assess the business, but no suitable offers are made.
Wilma is now forced to work with Stan in the business in order to support herself and her family. Stan resents Wilma being part of the business, since she has no expertise in the industry. The business doesn’t thrive as it used to when Oliver was alive, so the revenues reduce, which impacts on Wilma and Stan’s profit.
A Life, TPD and Trauma policy on both Stan and Oliver’s lives should have been purchased, in conjunction with a written buy-sell agreement for $1,500,000 each, which represents the agreed value of the shares. This policy would have provided Wilma with $1.5 million for the value of Oliver’s shares. Stan would have received the shares and the sole right to run the business and draw profits.