Unlike a marriage, a business partnership doesn’t involve making vows about working together until death do you part, but that is an implied part of an agreement in many cases. Business partners may negotiate certain terms for a buyout in their contract with one another, but they will likely intend to continue working together until they sell the business, retire or die.
Especially if entrepreneurs are still in the primes of their lives, they may not properly address the possibility of a partner dying in their partnership agreement or their business plan. People often assume that they will face a buyout or a partner retirement rather than the death of their partner. Yet, it is important to understand – no matter how old a business owner is – what will happen if one partner suddenly dies and the company is still operational.
Prior planning comes into play
Ideally, when a business partner dies, they will already have an estate plan and a succession plan in space. Their estate plan can address what happens to their ownership interest, while their succession plan can talk about viable candidates for their replacement or the right training to move someone into their role.
Sometimes, business partners put documents in place that will transfer the ownership interest to the other partner when one person dies. Other times, the interests may transfer to their families. If someone does not address their business ownership, then it will likely be their spouse or children that will inherit the interest in the business. In the interim, the estate will be the acting business partner.
In some cases, a spouse or children set to inherit a business interest will have no desire to own or operate the company. They may agree to a buyout. Other times, the surviving partner will have to prepare to run the business with someone totally different than their original partner. Those who are about to start a new business need to put a plan in place from the earliest days that will address what happens when either partner dies or experiences a medical emergency.
Those who are adjusting to unexpected events may need help handling the fallout of the death of a business partner. Learning more about what happens to a company after unexpected, specific personal events occur can benefit those who are creating or transferring a business to better protect themselves with the assistance of an experienced legal professional.