It's estimated that over 70% of South Africans die without a valid will. The potential for family disputes aside, the consequences can be dire for businesses when an owner passes without leaving a clear succession or liquidity plan.
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FreepikWithout these, operations can grind to a halt, employees and partners are left in limbo and company shares may be frozen until the estate is wound up - a process that can take years.
“Business continuity isn’t something you sort out later,” says PJ Veldhuizen, managing director of boutique commercial law firm Gillan & Veldhuizen Inc. “When an owner passes away unexpectedly, the impact ripples through every part of the organisation - from payroll and supplier payments to share transfers and client relationships. That’s why corporate legacy planning should form part of every estate-planning discussion.”
The role of Key Man insurance
A Key Person policy (often called Key Man insurance) provides a financial buffer for the business if a founder, director or critical employee dies or becomes disabled. The policy pays out directly to the company, enabling it to stay afloat while finding or training a replacement.
“Value in most businesses is tied to people, not products,” notes Kayley Leverton, senior associate at the firm. “A sudden loss can destabilise operations overnight. Key Person insurance allows the business to maintain stability and reassure creditors, staff and clients that it has the means to continue trading.”
The payout can be used for short-term expenses such as salaries, debt servicing, recruitment, or restructuring. It’s particularly useful for owner-managed or partnership-based enterprises where personal reputation and know-how underpin the brand’s success.
Nasheetah Smith 16 Apr 2024 Buy-and-sell agreements: Protecting partners and heirs
A buy-and-sell arrangement ensures that, if one shareholder dies, the surviving partner(s) have the funds and legal right to purchase the deceased’s shareholding - preventing outsiders or disinterested heirs from inheriting a controlling stake.
Typically, each partner takes out a life policy on the other’s life, with the payout used to buy the deceased partner’s shares from their estate at a pre-agreed valuation. The structure prevents disputes and secures liquidity for the deceased’s family.
“Without a buy-and-sell agreement,” warns Veldhuizen, “you can end up in a deadlock situation - heirs who don’t want to be involved in the business but can’t find a buyer, and surviving partners who can’t afford to buy them out. A properly drafted agreement and matching insurance policy eliminate that risk.”
Common variants include cross-purchase, entity-purchase, and hybrid arrangements, each carrying distinct tax and estate-duty consequences. As Leverton adds, “Getting the mechanics right - who owns the policy, who pays the premiums, and who receives the proceeds - is critical. A misstep here can trigger avoidable tax or estate-duty liabilities.”
Palesa Mabasa 28 May 2021 Estate liquidity and corporate continuity
Even with strong insurance planning, a lack of liquidity can delay winding up the deceased’s estate or transferring business assets. Estate duty (currently 20% above R3.5m) and capital gains tax can compound the problem, especially where the business is asset-rich but cash-poor.
Leverton explains: “Estate liquidity isn’t just about covering personal debts - it extends to ensuring that the deceased’s business interests can be transferred or maintained without distress sales or shareholder disputes.”
Strategies may include life-cover top-ups, testamentary trusts or cross-ownership structures that keep capital within the business ecosystem.
Effective corporate legacy planning requires collaboration between legal, tax and financial professionals. It’s not just about documents, it’s about foresight.
“Think of it as risk management for the people who depend on your business,” says Veldhuizen. “You insure your building, your vehicles, your assets. Why wouldn’t you insure your leadership?”
