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n The clause may make provision for a “buy and sell” agreement to be
concluded, which is a binding contract between the business partners in the
event of the death of a partner.
n The buy and sell agreement usually states that on death, the executor of
the deceased partner’s estate will be obliged to offer the deceased’s equity
or shares to the remaining partners, and in turn, they will be obliged to
purchase them. A time limit is set for this to take place, so that the winding
up of the estate is not delayed (usually three months after the date of death).
n It is essential that a regular determination of the value of the business is
obtained. This can take the form of an addendum to the agreement, signed
by all parties, as soon as the annual financial accounts are available. The
parties need to work together with their accountant and discuss the value of
the underlying assets and goodwill. When the business is largely dependent
on the input and skills of an individual as opposed to a trade, it is also
important to agree on the intellectual capital.
n The parties may make provision for the survivor(s) to fund the taking over of
the deceased’s share of the business by taking out life insurance on each
other’s lives and by paying each other’s premiums, known as “buy and sell
insurance”. In practice this means that the deceased estate is paid cash for
the equity (from the proceeds of the policy) and the surviving parties take
over the shares.
n The beneficiaries of the deceased estate are ultimately “looked after” in that
they will receive the value of the equity in cash.
n Essentially it means that there is a life policy for each partner, owned by all
the other partners (not by the business). This policy then provides the cash
to enable the remaining partners to buy the deceased partner’s share of the
business. The partner whose life is insured must not own the policy, or it will
be deemed a part of his estate when he dies. By letting the other partners
own the policy, the money falls outside the deceased partner’s estate.
n The proceeds of the buy and sell insurance will not be subject to estate duty
provided three requirements are met:
u The partners paid each other’s premiums. No premium on the policy must
have been paid by the deceased;
u The relationship (partner or co-shareholder or co-member) to the
deceased must have been in existence at the date of death;
u It must have been the intention of the parties to enable the partner or

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