Q&A - What happens to partnership share when one partner dies?

Q.  My father and uncle are the partners in the family business in which my father has invested heavily over the years. They inherited the business from their parents. Currently my cousin and I both work for the firm but we don't see eye to eye. My uncle is terminally ill and I'm worried what will happen when he dies.

A.  You don't say whether your father and uncle have a written Partnership Agreement - which could make a considerable difference to the situation when your uncle dies. The Law relating to Partnerships is still governed by the Partnership Act 1890 ("The Act"), although its provisions can be varied by agreement to suit the Partners. Unless it is recorded in writing, it may be difficult to prove that there is such an agreement or the precise terms of the agreement.

On the basis of the information you have provided it seems probable that there may have been unequal contributions by your father and uncle to the Business.  . If this is the case, I must warn you that in the absence of an agreement to the contrary, the partnership capital is deemed to be held equally. Therefore it may be that your Cousin (or whoever else may be the beneficiary of your Uncle's estate)) may inherit a half share in the Business.

Furthermore, in the absence of an agreement to the contrary, Section 33 (1) of the Act operates to automatically dissolve the partnership when one of the partners dies or becomes bankrupt. 

My advice to any Partners entering into business together would be to seek legal advice with regard to drawing up a written Partnership Agreement which sets out the position regarding partnership capital (including the shares held by the partners) and provision for the partnership to continue in the event that one of the partners dies.

01/03/2011