What Happens to a General Partnership if a Partner Died Leaving His Shares in a Will to His Wife?

The death of a partner can be a stressful time, both on a personal and professional level. If a contingency for such an event has not been formally agreed upon in the partnership agreement, you may be facing some difficult legal issues to determine the future of the company. Fortunately, the death of a partner is not necessarily the end of the business itself. There are several options to explore when ownership shares have been passed to an estate.

In many cases, the most preferable of all options following the death of a partner is to have the remaining partners buy out the shares of the deceased from the estate. Many partnership agreements stipulate this as the method to handle the death or incapacitation of a partner. Some agreements may allow for the buyout of shares over time to prevent a massive financial strain on the company. If both the partners and the estate agree to this arrangement, the business should be appraised to ensure that the estate receives equitable value for the ownership shares.

In some instances, you may wish to terminate the business upon the death of your partner, while the deceased's family and estate wish to continue to operate the business. Should you find yourself in this position, consider selling your shares to the estate and relinquishing all ownership. This may be especially relevant if the deceased was the majority partner, leaving the minority partner with the entire responsibility of managing the company.

Unfortunately, sometimes a business cannot survive the death of a partner. This may be particularly true if the deceased partner provided a unique skill that isn't easily replaced. For example, if the deceased was an actuary and worked at a reduced salary for the betterment of the business, it may be cost-prohibitive to hire a replacement actuary upon his death. If this is the option you choose, others may reach the same assessment of the business when they look at the books. In that case, the market may not be favorable and the business may be sold at a considerable loss.

Although this may not seem obvious to many business owners, it can actually be beneficial to absorb the heirs into the business provided they offer some expertise and skills that benefit the organization as a whole -- for example, if the widow is an accountant and can add value to the partnership. That being said, heirs often lack the level of passion for the business that the deceased partner maintained which can lead to poor performance. Furthermore, any heir may not blend well into the personality of the company and may disrupt the work environment.