What Is A Key Man Agreement

If you own or manage a private equity firm, mutual fund or other investment firm, and you want to let your investors know that their money is safe, no matter what happens to you or the managers who make your investment decisions, you need to take several steps: A buy-buy agreement determines the market value of a business. This allows surviving partners to easily buy all bets when a partner dies. The fact that the police also require surviving partners to buy shares of the deceased partner also eliminates any conflict that may arise. A key clause and insurance are good first steps, but you can do more than that. A contingency plan sets out what the company should do if something happens to a major investment manager. If your business is large, the plan will indicate who gets what investments. It also provides a timeline for hiring or promoting a replacement. If your business is small, you may need to determine if you want to return your investments to other businesses or to your customers. In addition, you need to decide who will take charge of the closure of the business. A keyman clause serves as a kind of guarantee that the company gives to investors, assuring them that only the most qualified executives and the most senior executives make important decisions. Since investments can last for several years, the key man is responsible for making critical decisions during the investment period in order to achieve the highest possible return. One of the concerns of investors is what happens if a key person who oversees their investments leaves the fund or ceases to be involved in the management of the fund.

In large investment firms, a key man clause helps the company quickly provide effective replacement to senior executives when needed. What does this agreement look like? The standard document can be printed on five pages. A purchase agreement would work well in a business owned by two partners. In this case, the partners would take out term life insurance, which would allow a partner to buy a business in case a partner died or was unable to work. When starting a business, it is important to have a plan to protect the investment as well as the business parties in case of a partnership.

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