Partnership - Death of a Partner

The Problems        (Business Succession Link)

1. Death dissolves a partnership.

2. In the event of death of a partner,  the business must either:

LIQUIDATE	OR	REORGANIZE
(1)  Substantial loss usually		1)  Take heirs in as partners:
results.		a) Inexperienced.
		b) May not have time to devote to business.
		c) Usually more interested in immediate income than
		d) Heirs have power to dissolve the partnership with
(2) Survivor is out of a job.		(2)  Find a new partner:
		a) It must be done quickly and it is extremely difficult
		to find someone with enough skill, money and
		a compatible personality.
		b) What is the price?
		c) Will the heirs sell?
		(3) Heirs buy out survivor:
		a) Heirs usually do not have the time or the skill to
		b) What is the price?
		c) Survivor is out of work.
		(4) Survivor can buy out heirs:
		a) Usually best.
		b) But what is the price?
		c) Where does the survivor get the cash?
		d) Will the heirs sell?

THE SOLUTION A liquidation buffer fund may    (1) Possibly a buffer fund to cushion the shock of the be the solution.        death with heirs taking over.            2) Usually the only really solid and equitable solution          is a properly funded buy-sell agreement.     a) Survivor continues the business free and clear,         and without interruption.     b) The heirs get a fair price for the deceased         partner's interest.

The information contained in this article is intended to provide general guidelines only. The application and impact of the law can vary widely from case to case based on the specific or unique facts involved. Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Users are encouraged to consult with their professional advisers for advice concerning specific matters before making a decision.