When a Business Partner Dies or Leaves the Business Partnership

January 22, 2005 | By | 2 Replies More

QUESTION on what happens when a business partner dies or leaves a business partnership

Can you have a business partnership with only one person? I know business partnerships are usually two or more people but I was wondering if it is possible to have a partnership with only one person. Say, one business partner dies or leaves?

– Jana Reiman, ID




ANSWER

Dear Jana:

A partnership, by definition, consists of two or more persons and, therefore, one individual does not a partnership make. But you bring up the important — and often overlooked — issue of what happens when a partner is disassociated from the partnership.

Ideally, this issue should be addressed in the partnership agreement. In addition to defining the terms by which a partnership is to be owned and operated, a good partnership agreement will include a “buy-sell” provision to address what happens to the partnership in the event of a partner’s death, divorce, disability, bankruptcy, resignation or retirement.

A buy-sell agreement is a binding contract between the partners that defines:

  1. What events will trigger a buyout,
  2. The price that is to be paid for the disassociating partner’s interest in the business, and
  3. Who can buy the dis-associating partner’s interest (e.g. outsiders vs. other partners in the business).

business partners

In the absence of a buy-sell agreement, state laws regarding partnerships will apply–and this could have a negative outcome for you. The departure of a partner, for example, might result in an automatic dissolution of the partnership and forced distribution of assets and profits. If a partner dies, becomes incapacitated or gets divorced, you might unwillingly inherit the partner’s spouse (or ex-spouse) as your new partner in the business. Likewise, if a partner decides to sell his interest to an outsider, you could end up having to share your business with a stranger.

Planning and preparation for certain events that could potentially affect a business partnership are just as important as running the business itself. A buy-sell agreement can help you prepare for such circumstances and maintain control of important business decisions.

Chrissie Mould
 
Recommended Readings on Partnerships:

 
Recommended Books on Business Partner or Partnerships:

 

Chrissie Mould

Chrissie Mould has over a decade of experience in business administration and startup business consulting. She has helped launch companies in multiple industries and has managed corporate administration and governance for public and private companies. She is an incorporation specialist with MyNewVenture.com LLC. The company provides low-cost incorporation services to entrepreneurs and small businesses.

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Category: Business Structure, Q & A

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