What happens to your business Partnership if you pass away?
Firstly, what is a Partnership?
A partnership is where two or more people set up and run a business together. They can employ as many people as they wish but in all cases, the partners of the business share the ownership and the profits (and losses) between themselves.
What is a Will?
A Will is a legal document that you or your Solicitor would prepare to manage and then distribute your assets after you pass away – it would decide things like who gets the home, who gets the chattels and so on.
What is a Business Will?
A Business Will is like a “normal” Will above mentioned but the difference is that it deals specifically with what should happen to your business when you pass away.
The issues for a Partnership:
If you are in a partnership with someone or indeed several other people in general terms you will either have a “Partnership At Will” where no formal documents were prepared when you started trading together and if one partner passes away, the partnership ends at that point too. Alternatively, you may have a Partnership Agreement, and usually, it is the Partnership Agreement that decides what should happen to a partner's share when one of the partners passes away.
In both cases, your business assets will pass to the executors of your Will as part of your estate if you have a Will.
In the partnership if a Partnership at Will then the executors will then try to close it down in an orderly way as much as possible. If you do not have a Will, your estate will instead come under the control of the administrators of your estate once they have been given authority to act, which may take many months.
In a Partnership Agreement, the executors will transfer the deceased’s partnership share in accordance with the terms of the Agreement. The remaining partner(s) may have to “buy” that share for a reasonable sum, an agreed sum stated in the Partnership Deed or perhaps even be gifted the same.
Exactly how the executors or administrators handle your partnership share will depend on the specifics of your partnership agreement. For example:
The other partners may have the option to buy your interest before your executors sell or transfer it to anyone else
The executors might also have the right to require the other partners to buy your interest, but this is unusual and may have unwanted tax consequences.
Once that has taken effect, the executors or administrators would then need to pay any debts or taxes for your share of the business and the estate. They may need to sell some of your business assets to do this.
The executors will then distribute any remaining property or assets (including any business assets or the sale proceeds from them) in accordance with the terms of your Will. If have not left a Will, then the administrators will distribute your net estate according to the Rules of Intestacy.
If you are in a partnership, it is vital that you check the Partnership Agreement and if you do not have one, to set one up with the agreement of your partners and that will determine the shares of the partnership and what would happen on death.
It is also vital that your Will dovetails with the Partnership Agreement so that there are no issues that arise later – as often, they can cost huge sums of money to resolve.
Please contact me with your questions and if you need assistance with drafting your Business Will. Also, if you are a Sole Trader, please click HERE. If you own a Limited Company, please click HERE.
Shak Inayat | 075 38 37 38 38
The information provided in this article is not intended to constitute professional advice and you should take full and comprehensive legal, accountancy or financial advice as appropriate on your individual circumstances by a fully qualified Solicitor, Accountant or Financial Advisor/Mortgage Broker before you embark on any course of action.