What Happens When Your Business Partner Dies

The business attorneys at the Law Offices of Douglas T. Sachse explain what happens to companies and their owners if a business partner dies.

Whether the topic is postnuptial agreements, estate planning, or succession planning, many people struggle with discussing and making decisions about “the end,” especially when they believe it’s nowhere in sight. However, as many news articles have recently explained, failing to prepare for the future is the one of the worst decisions a person could make. This same principle also applies to business.

When embarking on a new business adventure together, many business partners are so focused on getting the business up and running (and making money) that they disregard or simply forget the need to make accommodations for the death of a business partner, as well as other monumental, life-changing events. By taking estate planning actions for your business in the early stages of development, you are significantly decreasing the company’s risk for devastation if you or your business partner dies.

So, what exactly happens to the business if your partner dies? The first phase will be to reference the buy-sell agreement, which is a legally binding agreement between business partners that governs the situation if one of the partners dies, chooses to leave the business or is forced to leave the business for a variety of reasons. In reference to death, this agreement will explicitly disclose instructions on transferring the deceased partner’s ownership to the other partner or a third party. The buy-sell agreement will need to state either the value of the business or how the value is to be determined when the agreement is activated so the other partner involved will know how much money is needed to gain full ownership or at what price he or she can sell the business, depending on the conditions of the agreement.

If the business partners were operating without a buy-sell agreement, then the deceased partner’s stake in the business becomes part of their estate. This poses many problems as the uncertainties of who will be acting on behalf of the deceased leaves the other partner with decisions to be made with a person who may not understand the intricacies of the business.

Although this process may seem emotionally difficult and miniscule, planning for the death of a business partner is 100 percent necessary for the successful operation of your business, and it is equally important to invest in the guidance of an attorney. There are many components involved with succession planning and buy-sell agreements including insurance costs and tax implications, so it’s important to take the time to ensure all of the bases are covered.

We understand that you’ve spent a countless amount of time, energy and resources towards creating and sustaining the business. Taking the necessary steps in the beginning stages of the journey will not only protect you and your partner, but also the business itself, from any unexpected developments in the future.

For more information on buy-sell agreements for a business or your individual business circumstances, contact the business attorneys at the Law Offices of Douglas T. Sachse.

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