Starting a business with a close friend is a dream for many people. But the question most partners never discuss is this: if one of us is no longer here one day, what happens to the company — and to his family? This article opens that awkward but necessary conversation, along with the insurance tools that help both the business and the friendship come through together.
The risk partners usually never discuss
Picture a company with two partners who divide the work neatly: one runs sales, the other runs production. If one of them dies suddenly, the problems arrive in a set. Half the company's work has no one to do it. The confidence of customers and creditors is shaken. And most complicated of all: the shares of the person who has died pass to their heirs. You may suddenly have a new partner — your friend's spouse or child — who may not know the business at all, or who may want to sell their shares immediately, at the moment the company is most fragile.
Tool 1: keyman insurance, protecting the business itself
The first idea is for the company to insure the life of a key person, with the company as policyholder and beneficiary. When a claim arises, the lump sum provides the liquidity to pay debts, hire a replacement and carry the business through the transition. We have written a full guide to keyman insurance separately. The tax treatment of the premiums and the proceeds depends on the rules and the facts of each company, so consult your accountant and check with the Revenue Department before proceeding [check the latest information].
Tool 2: a buy-sell agreement, solving the shares problem
The tool that answers the problem of an unchosen new partner is an agreement made in advance. In principle, the partners agree beforehand that if one of them dies or leaves the business for a defined reason, that person's shares will be bought back by the remaining partners or by the company, at a price or pricing formula agreed in advance. The result is that the heirs receive a fair sum of money instead of shares that are hard to sell, while the remaining partners retain full control and can carry on without obstruction.
Life insurance is the fuel for a buy-sell agreement
An agreement to buy shares back means nothing if, on the day, there is no money to buy them with. This is where life insurance becomes the mechanism: the partners insure each other's lives (or the company takes out the cover, depending on the structure designed), with sums insured matching the value of each partner's shares. When a claim arises, the proceeds are a ready source of funds to buy back the shares under the agreement — without borrowing and without selling company assets. The legal and tax structure of each arrangement has considerable detail, so work with a lawyer and an accountant from the design stage.
How to raise it with your partners without awkwardness
The trick is to reframe it from a conversation about death into one about the sustainability of the business and fairness to everyone's family. Open with three questions. First, who does the business depend on, and for what? Second, if one of us is not here, how should the value of their shares be calculated? Third, what should each family receive? Having a neutral party such as a financial adviser or lawyer lead the discussion keeps it professional and ends it with a plan everyone is comfortable with.
In short
A business with a friend that lasts has planned for the day nobody wants to arrive. Keyman cover looks after the business, a buy-sell agreement looks after the shares and the families, and life insurance is the engine that puts real money behind both plans. All of it should be designed with your own accounting, tax and legal advisers. If you would like to start with the overall picture, message us on LINE any time.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.