Page 44 - Bespoke EPG 2017 Digital

■■ The partners may also decide to propose for key man insurance, where
one partner is a “key” person in the business, whose particular skills and
knowledge are essential for continued success of the business.

■■ The life of that partner is insured by the partnership, which owns and funds
the policy. This insurance protects the partnership against financial loss
which may be caused by his / her untimely death. In attributing a value to
such key man policies, factors such as the cost of appointing and training
a replacement and the decline of profit of the business is taken into
consideration.

■■ When the policy is taken out the partnership can elect if the premiums are
tax deductible. If the election is made for the premiums to be tax deductible,
when the policy pays out the proceeds will form part of gross income. If
however the election is not made for the premiums to be tax deductible,
when the policy pays out the proceeds will be exempt from tax.

The sole proprietor

■■ Sole proprietors should also consider succession planning.

■■ A sole proprietor’s Last Will and Testament should state who should be
approached first to take over the business, and how the executor should deal
with the situation.

■■ The sole proprietor will need to make a decision as to whether he wishes to
leave his business to an associate or to a family member. It could be useful
for the sole proprietor during his lifetime to give or sell the named successor
a small share of the business, and to introduce him to the secrets, modus
operandi and client base of the business. In addition, the sole proprietor
should write down the secrets or methodologies of the business, so that they
are available in the event of his demise.

■■ Even though a sole proprietor may have several employees, legally the
business and the sole proprietor are one and the same, which means
that should he pass away, his estate will be wound up, as essentially the
business forms part of his estate.

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