Onboarding a new partner into a company can be a thrilling and optimistic time for businesses and presents the potential for future expansion and improved business prospects thanks to the addition of impressive new talent atop the hierarchy.
However, adding a new partner to your business team also presents potential banana skins that should be examined and solved ahead of time. Otherwise, the financial and personal fallout could be intense and wide-ranging across the business. If you’re unsure about partnership protection, working with an experienced insurance expert can help you navigate the many available products and choose a level of coverage with a provider that is right for you.
In this article, we will explore what you should do with your partnership protection insurance when a new partner joins the firm, to best protect the business, its assets and its employees.
Why is partnership protection important?
Partnership protection is an essential piece of armour for businesses seeking to prevent chaos in the event of a partner falling seriously ill or passing away.
It presents the financial resources for the remaining partners to buy out the shares of the ill or deceased partner, so that control of the business can remain with the partners and not fall into the hands of someone who is not capable or interested in running the business effectively, such as certain family members.
This offers the partners peace of mind that the business will continue to operate smoothly should something catastrophic happen to a partner. However, the addition of a new partner means the partnership protection policy should be examined to ensure the same level of protection remains in place.
Assessing the impact of a new partner on existing protection
Evaluating the new partner’s contribution
New partners often bring with them the potential for rapid new growth in various directions for businesses. While this is a welcome advantage, it is important to keep all business insurance policies – including partnership protection – in line with the size and scope of the business, to ensure every eventuality is still covered.
For example, if there is a strong expectation – based on their previous roles and skills – that the new partner will help boost company visibility and profits quickly, it would be wise to examine the specific terms of your partnership protection and adjust it accordingly if the company grows beyond what your original policy provides. If this happens, you should speak with your partnership provider to see if they can offer a new policy which matches your needs, or switch to a new provider if they’re unable to do so.
Reassessing the partnership’s financial needs
As mentioned above, the addition of a new partner can present great financial growth and opportunities for a business. But this, in turn, may affect the financial needs of the business drastically. As businesses grow and experience financial growth, they inevitably begin spending more in different areas of the business. As spending increases, businesses need to maintain insurance policies – along with their partnership protection – with an adequate level of coverage based on their specific financial needs.
Considering the new partner’s protection needs
Before reassessing and updating your partner protection when a new partner arrives, you should also examine the personal life of the new partner – with their permission, of course – to ensure they have their own protective measures in place to assist if an unfortunate event should occur. Whether or not they have their own protection, in turn, may affect your partnership protection.
Updating your partnership protection agreement
Once you have considered the possible impact a new partner could have on your business, you should consider the following areas when seeking to update your partner protection policy:
Reviewing the buy-sell agreement
The ‘buy-sell agreement’ refers to the specific set of actions that takes place in the event of a partner’s serious illness or death that leads to the remaining partners buying said partner’s shares, so the business can continue to run as planned. However, the addition of a new partner means this policy should be updated to include their name so that they too can be given the option to purchase the shares in question.
You should also determine whether the policy still provides the required funds to buy out the shares, or whether another insurance policy needs to be put in place to provide the adequate funds.
Adjusting the ownership structure
As a new partner enters the business, their shares can be acquired from the shares of an existing partner, which can cause some internal strife and potential clashes. It is essential that the ownership structure of the business is crystal clear to all involved partners, as to avoid such clashes or confusion in the future. When a new partner joins, you should consult the services of a legal expert who can guide you on the best steps in ensuring the partner receives everything they are entitled to, without overstepping the mark at the expense of the other partners.
If the new partner is acquiring their shares from an existing partner, you will need to adapt the ownership structure of the business to reflect this change. This may include shifting the percentage of company ownership for each partner or creating a new class of shares entirely.
Monitoring and reviewing partnership protection regularly
Ensuring you have the appropriate level of partnership protection in place is crucial in protecting your business, so it is always wise to review your partnership protection regularly. This includes when a new partner joins the firm, but the policy should also be reviewed when there is any major shift within the structure of the business, as well as at set times throughout the year.
Scheduling regular reviews
Keeping a regular eye on the terms of your partnership protection is a great way to prevent missing a potential issue should the setup of your business come into conflict with any of the terms, meaning they must be updated to meet the new needs of the partners and the business.
This could be done every 12 months or multiple times per year, depending on how frequently major changes occur within your business. During these reviews, you should pay close attention to whether or not the terms still offer the level of coverage you need based on the needs of the partners and the current state of your business.
Adapting to changes in the partnership
The status and position of partners within a business can shift regularly, to meet the current conditions of the business. Because of this, it is important to take note of any major changes within the business hierarchy and position of partners, so that the partnership protection can be reviewed and updated if needs be. In this instance, it is also wise to review any other insurance policies you have in place to ensure they’re still effective in light of any changes within the structure of the business and its partners.
Give yourself the peace of mind you need with partnership protection
The arrival of a new partner signals significant changes within a business, which is why it is essential to use common sense as well as follow the above measures to ensure all partners still have the coverage they need through partnership protection. By taking a proactive approach to your coverage, you can defend against the pitfalls of coverage that’s no longer fit for purpose and guarantee your business can continue to operate.