Death of a business partner

Home

Members

Services

News & Info

Entertainment

Help

Content Starts Here

Death of a business partner

Search: Find a business credit card

Why should you read this guide?

In most cases one of the worst things that can happen to a business is if one of the partners, directors or main shareholders dies. This can have a devastating effect on a business and in some cases can see the end of the business as well. You can and should take precautions against the effects of this and there are things you need to do in the unfortunate circumstance of it happening.

Background

When you start in business there is general excitement and optimism. If you are lucky you will also receive good advice from someone who will help you to keep your feet on the ground and tell you some of the problems to look out for. One of the many things that you should be advised of when going into business with someone else is to adequately protect both yourself and the business. If you take action at the early stages it can make life a lot easier later on.

Partnership or shareholder agreements

These documents are crucial for any business owned or operated by more than one person. They are best written at the start of the business. This is the opportunity of all parties involved to decide what happens to the business or their share in the business in the case of something going wrong. The partnership agreement can stop minor disagreements in the business being blown out of proportion. They need to detail what the responsibilities and contributions each partner should make to the business and what happens if this changes. They should allow for a new partner to be brought into the business and how this should be done. For the purposes of this guide details need to be laid out for what happens if someone dies.

You need to decide what happens to the partner's share in the business. Does it pass to a member of their family? Does the partnership agreement allow for the other partner to buy out the deceased shares? Does it automatically pass to the other partner? Or does it mean the end of the business?

Key person insurance

Finding a replacement for the dead partner is often an urgent requirement. This can cost a great deal of money as you may need to consider employing someone to fill this gap. Key person insurance insures against the death or in some cases the long term illness of a partner. The payment received from the insurance can also be sued to buy out the shares of the deceased if this is written into a partnership agreement.

Banking transactions

In the case of a limited company the death of a director or shareholder has no direct effect to the trading of the business. If the director was guaranteeing the borrowing facilities of the business then other arrangements will need to be made. For a partnership this is totally different. If the business is borrowing, the death of a partner means the account will be frozen immediately. As all partners are joint and severally liable for the debt the bank will need to know how this is getting repaid. A new account will be opened in the names of the new partners and new borrowing facilities may be arranged. If the account is in credit there is no need to freeze the account and the deceased partner can be taken off the name of the account.

Summary

Like most things in business, if you properly plan for the death of a partner this will limit the disruption to the business and surviving partners. This planning is always best at the start as these things can obviously happen at any time.

Further information

For advice on planning for the death of a partner you should speak to your solicitor. Your bank manager or accountant will also be able to help you with partnership agreements and arrangements.