You are enjoying the benefits of Partnership by way of Capital, Expertise and many other Tangible and Intangible assets of each other. Over and above all, the pillars of Partnership are Faith, Love and Mutual Understanding among the Partners. We always wish that partnership should not be disturbed in any situation whatsoever.
But there are some natural unavoidable events, which may have an adverse effect on the smooth running of the business, and this requires immediate attention.
On death of any partner, the vital questions arise
What will my family get ?
Will they get what I am worth ?
Will they get in time ?
Is my share protected ?
What will be the situation ?
Is this all what I want ?
All above-mentioned questions may lead to Mistrust / LITIGATION among the partners.
To avoid the same :-
Buy and sell agreement is an agreement made by the partners when they are all alive wherein they decide in advance the perfect solutions to be implemented in case of death of any of the partner. The Buy and Sell price is mentioned in the agreement and is revalued every year/periodically.
It leaves no option open for future argument which may lead to litigation.
There will be no dispute amongst the partners for deciding the share of each partner as it is clearly mentioned in the agreement.
It makes all the partners free from worry, stress and enhances goodwill, faith, love and mutual understanding among the partners.
The alternatives & Possibility on the death of any partner :-
| Alternatives | Possibility | |
|---|---|---|
| Taking heirs as active partner if it is in the interest of the firm | If surviving partners agree. If heirs agree to join. If the heirs are capable in terms of age, knowledge and attitude. In case of professional partnership heirs cannot be partners unless they are also practitioners. |
|
| Taking outsider as partners in place of the deceased partner. | The outsider may or may not be able to maintain harmony especially by maintaining the same kind of faith, love and mutual understanding. | |
| Having heirs as inactive partners without settling the share of deceased partner. | This will definitely affect the profitability, smooth and healthy running of business. Also the scope of this possibility is very limited. It may also be not possible if the family requires the money urgently. | |
| Remaining partners may buy the shares of the deceased partner. | The partners may or may not be in a position to buy the shares. It is not possible where the deceased partner is the major shareholder. | |
| Selling some of the property or assets. | The danger of loss or shrinkage of value of assets may arise. Immediate selling or selling a part of the property may not be possible. | |
| Partnership can be dissolved. | The worst alternative of all and affecting not only the future of all the remaining partners but also the employees, creditors and all the people involved. It also leads to the loss of goodwill. |
|
| Partnership firm can settle full share. | From Reserves of the firm if possible. By raising loan from outsiders. Finance through PARTNERSHIP INSURANCE. |
|
Selections of Alternatives :-
After going through the above alternatives and possibility the most practical, easy, and effective of all the other alternatives is to select the “ Finance through PARTNERSHIP INSURANCE ” , which overcomes all the defects of other alternatives. If the same is selected then the question arises as to how much amount is payable to the heirs of deceased partner.
Example :-
The following example will further explain the required capital needed to settle the share of the deceased partner for a partnership firm. Mr. A, B, C & D started with initial capital investment of Rs.2 lacs each10 years back.
As on today their balance sheet appears as below :-
|
Capital |
Assets |
Market Value |
||
|
Mr. A |
Rs.10,00,000 |
Office |
Rs. 8,00,000 |
Rs. 24,00,000 |
|
Mr. B |
Rs.10,00,000 |
Mfg. Unit |
Rs.22,00,000 |
Rs. 66,00,000 |
|
Mr. C |
Rs.10,00,000 |
Working Capital |
Rs.10,00,000 |
Rs. 10,00,000 |
|
Mr. D |
Rs.10,00,000 |
---- |
---- |
---- |
|
Total |
Rs.40,00,000 |
Rs.40,00,000 |
Rs.1,00,00,000 |
|
As on today the book value of the assets is Rs.40 lacs, the market value of the assets is Rs.1.00 crore so Rs.25 lacs is payable on the death of any of the partner and not Rs.10 lacs as shown in capital accounts. Rs.25 lacs going out from the firm will obviously cause great damage to the firm.
Problems to be faced by surviving partners :
- How to settle his share ?
- How much is to be paid to him ?
- Is it possible to raise that much money immediately?
- If so, from where? And at what cost?
Guaranteed solution
At the time of such a critical situation, I have a scheme which will come to the rescue of the firm – by providing immediate finance for guaranteed profitability, continuity and survival of the company.
HOW MUCH THIS SCHEME WILL COST ?
Absolutely NIL
It is just TRANSFER OF CAPITAL from one account to another.
I’m sure you’ll go for it.