Losing your business partner can be tough, both for the business and for you personally. While general partnerships confront the death of a business partner all the time, that is no comfort when it happens to you.
One of the most important things to do if your business partner passes away is to take time to mourn and recover. You will always have business obligations to deal with. However, losing your partner and colleague is an important milestone to honor and respect. Once you have grieved your loss, you will want to consider whether your company can remain open or whether the death of one of the business owners requires you to dissolve the partnership. The BrewerLong team can help you navigate the complexities of answering the question: Can a business partnership survive the death of an owner?
Does Your Business Have a Partnership Agreement?
One of the first things that must be done upon the death of a partner is to determine the terms of the partnership agreement. Many partnership agreements will have provisions for the death of a partner, such as the right of the remaining partners to purchase the deceased partner’s share of the business. This can provide a way for the remaining partners to continue to operate the business without interruption.
Even with a partnership agreement in place, you may still want to close your partnership if your partner passes away. However, having a partnership agreement gives you more options than you would otherwise have.
Is There a Buy-Sell Agreement in Place?
As a supplement or alternative to a partnership agreement, you may have a buy-sell agreement in place. These are sometimes referred to as “buy-out agreements” and are legally binding contracts where co-owners of a company agree on how a partner’s share will be reassigned if they leave the business through retirement, death, or for a similar reason.
Generally, a buy-sell agreement is funded through insurance policies that the partners purchase well in advance of the death or retirement of a partner. A buy-sell agreement provides the remaining business partners with a clear process to follow and an opportunity to continue carrying on the business.
What If There Is No Agreement At All?
If you did not create a written partnership agreement with your business partner, the Florida Uniform Partnership Act will apply. In this case, barring a showing that it would be equitable to maintain the partnership, the partnership statute of limitations when a partner dies is 90 days after the death of one of the partners.
If the partnership is wound up, then you will then owe your partner’s estate their share of the partnership as of the date of their death. This outcome can be particularly difficult when your business is thriving because winding up a successful business will have a great impact on your finances. In this case, you should speak with a Florida business attorney before there is any risk to your partnership to help get a proper partnership agreement in place. The BrewerLong team can help you get your business affairs sorted.
Can You Handle All the Legal Issues?
Dealing with the Deceased Partner’s Estate
One outcome that allows a partnership to survive after the death of one partner is that the decedent’s designated heir or beneficiary assumes ownership of their share of the business. If this individual—often a spouse or child of the deceased—is qualified to take their place in the business, then they are often welcomed into the partnership, and business can continue as usual.
However, if the new partner is required to sell their shares, like in a partnership law firm where a non-lawyer spouse must sell their attorney spouse’s shares in the practice, then all parties need to determine the value of those shares before the partnership can continue. In this case, a third-party valuation may be necessary.
Dealing with Government Paperwork
In addition to financial considerations, there are also legal issues that must be addressed upon the death of a partner. The remaining partners will need to inform the relevant government agencies of the change in ownership, and they may need to apply for new licenses or permits. It is also important to update any contracts or agreements that the business has with customers, suppliers, or other partners.
How BrewerLong Can Help
If you need to know more about how to buy out your business partner or ensure the survival of your partnership after the death of a member, BrewerLong can help. Our experienced attorneys give every client the close personal attention they deserve. We can provide clear and practical guidance throughout the entire partnership formation and agreement process. And our team has extensive experience helping small and medium-sized businesses succeed in their development. Contact BrewerLong today.
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