A partnership is fairly simple to set up. Two or more people get together with the intent of going into business; they get the appropriate licenses and file the necessary papers with the State and you are in business. When the areas of expertise of these people compliment each other the situation is ideal. Although each partner is taxed on an individual basis they all are liable for the debts of the business.

The partnership is treated like a separate entity in some ways as it can own property and execute documents, however, when it comes to payment of taxes or debt liability the owners are responsible. When a partner dies the company must be dissolved. If the survivors want to continue the business they must form a new company.

At the time of the formation of the partnership an agreement should be drawn up stating the percentage of shares each partner owns and under what conditions and in what manner shares can be disposed of. The agreement can be modified later upon the approval of a majority. If there are problems between partners the agreement is the legal document that they should be able to fall back on.

Advantages

• Fairly simple and inexpensive to set up.
• Makes going into business with family members easy and unlimited.
• Capitalizing a business is simpler and stronger when many people put their resources together.
• Because many people are putting their assets together the borrowing power is greater.
• Each partner has the unique opportunity of specializing in their own area of expertise.

Disadvantages

• Unless otherwise stated in an agreement the partnership must be dissolved upon the death of a partner.
• The remaining partners must purchase or inherit the shares of the deceased partner unless otherwise stated in an agreement pertaining to succession.
• A partner can require that the business be dissolved at any time.
• Cannot take advantage of tax write offs like group life insurance, disability and health.
• All partners are at risk for liabilities. All assets of the partnership are at risk in a limited partnership.
• If a partner wants to leave the partnership he may suffer financial loss.

Life Insurance

Now let us look at how life insurance applies to this type of business. Let us suppose a partner died or had to leave the partnership because of disability. This situation could destroy the business, however, if the business had a properly drawn up buy-sell agreement funded by life insurance and disability insurance much of the problems would be averted. Each partner would have a life insurance policy and a disability buy-out policy on his life paid for by the other partners. Upon the death or disability of a partner the insurance company pays an amount equivalent to the value of the shares owned by the deceased. This money is used to purchase the deceased shares from his heirs.

For more than 40 years Donald has been known for his extensive knowledge of the life insurance business. He has represented some of the largest and best life insurance companies in the United States as well as Canada. His advice is invaluable.