What Plans Should Be Made For What Happens To The Business After An Owner's Death?

• Unless there is a written agreement to the contrary, as a general matter, the death of a partner automatically dissolves the firm.
• In the absence of an agreement to the contrary, surviving partners have no right to buy the deceased's partnership interest.
• If the deceased was in debt to the partnership, the estate must settle the account in full and in cash.
• The surviving partners have exclusive possession of firm property but no right to carry on the business.
• If the business is continued, the surviving partners must share all profits with the deceased's estate and are liable for all losses.
• The surviving partners must liquidate the business, pay off partnership debts, make an accounting to the deceased's estate, and divide the proceeds with the estate.

Alternative arrangements to consider:

• Enter into a buy/sell arrangement where your interest is sold to your partner, or vice versa. Include how the price is determined, as well as how it will be paid. Perhaps life insurance can be purchased to fund the purchase price, or at least to act as a down payment.
• Reorganize the business with your heirs or with a new partner picked by you or your heirs stepping in to your shoes. The arrangement, and your choice, has to be acceptable to your partners.
• Require that the company be liquidated on the death of a partner.
• The resulting funds will likely reflect a low price -- with no consideration for goodwill.
• All surviving partners and employees will be out of a job.

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