A business partner passing away can be tough both personally and professionally. You might have worked together for a long time and built the business up to be a successful enterprise for both of you. What happens to your share in the business depends on a number of factors.
When your business partner dies, you could consider selling off the entire business and liquidating the assets and distributing them accordingly or bringing in an heir of your partner’s estate to take their place. Both of these options may seem undesirable, and there are other actions you can take to create a more favourable outcome.
If you both signed a written partnership agreement when starting the business, it is likely that you included a clause detailing how long the partnership is intended to operate for and what the outcome would be on the occurrence of death or permanent disability. Often this can provide for a few different options including:
- the deceased’s estate taking over their share of the partnership,
- a transfer of the other partner’s share to you on a payment to the estate, or
- an option for you to buy the share of the partnership using a financial formula.
You could also have undertaken a ‘Buy/Sell Agreement.’ Both you and your partner, along with your respective spouses enter into this Agreement to negotiate the terms and conditions of the transfer of the partnership share in the event of death or permanent disability. These are often created to ensure the process is clear and certain and will run smoothly if the event occurs.
No Partnership Agreement
If you did not create a written partnership agreement with your business partner, then the Partnership Act in your State or Territory will apply to regulate what happens to your business.
Generally, the Partnership Agreement will be dissolved immediately upon the death or bankruptcy of one of the partners. You will then owe your partner’s estate a debt for their share of the partnership that accrues at the date of their death. This outcome may not be what either of you had intended to happen when you first started your business together, particularly because of the impact on your finances and on having to wind up the business. This can create avoidable stress for both yourself and your partner’s estate and can be very time-consuming.
It is a difficult time when a business partner passes away, especially if you do not know the outcome of the business you are involved in. If, at all possible, it is best to engage in succession planning early on, which can make life much easier in the long run. A properly drawn up Partnership Agreement can last many years and give you both peace of mind.
LegalVision can assist you with creating a robust agreement that covers you both in the future. If your partner has passed away and you do not know what your Agreement entails, or you do not have an Agreement, please get in touch. LegalVision can help you get through the difficult time ahead by providing tailored advice and solutions to address your individual circumstances.