business Protection

The sudden death of a partner in a firm can cause problems for both the surviving partners and the deceased’s next of kin.

The partners may be legally bound, either under their own Partnership Agreement, or under the Partnership Act 1890, to pay an immediate capital sum to the deceased partner’s estate in respect of:

• the deceased partners share of undrawn profits for the year in which he / she died. 

• the deceased partners share of any partnership fixed assets, such as the office - building. 

• the balance of his / her capital or loan account. 

• a payment in respect of the deceased partners share of partnership goodwill. 

The partners could, therefore, be faced with the prospect of finding an immediate capital sum to meet their obligations to the deceased partner’s next of kin.

If they do not have sufficient liquid capital available, the surviving partners might have to borrow the necessary funds, but they would then be faced with the prospect of loan repayments for years to come. If borrowing is not a realistic option, the partners might be forced to pay a pension to the deceased partner’s dependants. This would also be a long-term financial drain on the partnership.

The surviving partners may not be able to find the necessary capital immediately. Some partnership agreements allow surviving partners to spread payments to a deceased partner’s estate over a number of years, up to 10 years in some cases. 

The problem is compounded by the fact that the next of kin cannot sell their partnership share to any other third party. They must therefore wait for payment from the surviving partners.

Partnership insurance can provide a solution to the problems.

For more information please contact our main office.