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
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:
- What events will trigger a buyout,
- The price that is to be paid for the disassociating partner’s interest in the business, and
- Who can buy the dis-associating partner’s interest (e.g. outsiders vs. other partners in the business).
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.
Recommended Readings on Partnerships:
- What is a Partnership: Types of Partnerships?
- How to Remove a Partner in an S Corporation Business
- How to Select the Right Business Partner
- How to Form LLC or LLP for a Start-Up Home Business
- Partner for Exponential Growth: The Joint Venture Redefined
Recommended Books on Business Partner or Partnerships:
- The Partnership Charter: How To Start Out Right With Your New Business Partnership (or Fix The One You’re In)
- Forming a Partnership : And Making It Work (Entrepreneur Magazine’s Legal Guide)
- Form a Partnership: The Complete Legal Guide
- Strategic Business Partner: Aligning People Strategies with Business Goals
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