The loss of a co-owner as a result of either death or disability could impact your business in the following ways:
- The existence of the business may be in jeopardy.
- Credit facilities may be affected adversely.
- Outsiders may obtain a controlling interest.
- Remaining co-owners may be unable to afford the deceased's interest or shares.
- The business interest may be sold below fair market value.
- Buy and Sell Insurance enables business continuity.
It works as follows:
- The co-owners enter into an agreement where they undertake to purchase the interest of their fellow co-owners should any of them die or become disabled.
- A co-owner takes out a policy with Botswana Life on the life of another co-owner and vice-versa. Each co-owner will consequently own a benefit on the life of the other and pay the premiums under the benefit of which they are owner.
- Policy benefit provides the cash to facilitate the purchase of an interest in the business, thus ensuring business continuity and the financial welfare of a deceased's dependants.
- When more than one (1) co-owner is involved, the benefit on the life of each co-owner will be jointly owned by the other co-owners, proportionate to their interest in the business.
An example is as follows:
Company X has three (3) co-owners: A, B and C. The insurance is exercised in three (3) ways:
- Co-owners A and B (the contracting parties) insure the life of co-owner C.
- Co-owners A and C (the contracting parties) insure the life of co-owner B.
- Co-owners B and C (the contracting parties) insure the life of co-owner A.
Benefits for the remaining co-owners are as follows:
- No risk of new co-owners joining the business who might be unskilled or incompatible.
- An inexpensive way of funding the purchase price.
- The business can continue with minimal disruption.
- Benefits for the disabled co-owner and heirs are:
- An immediate cash payment, which can substitute the income lost as a result of the death or disability of a breadwinner.
- A negotiated purchase price negotiated by the parties concerned ensuring that the co-owner or his/her dependants receive the full value of the business interest.