Partnerships: what happens on the death of a partner?

What happens to a partnership on the death of one of the partners?

• Section 33 of the Partnership Act 1890 says that the partnership is dissolved on the death of one of the partners (unless there is an agreement to the contrary)
• the partnership must sell its assets to pay off any creditors, and then distribute the funds to the former partners (in the case of a deceased partner as per their Will)
• the Wife/ Husband of a deceased partner is not liable for paying off creditors of the partnership. They are entitled to proceeds of the partnership left to them in a Will
• an Impatient spouse could sue if capital not released as quickly as he/she would like it to be

How much of the partnership does each partner own on the death of a partner?

In the absence of a partnership agreement each partner/ deceased partner owns an equal share of the profits/assets of the business regardless of amount of effort or initial investment he/she has put into business

How do partners share any liabilities?

• every partner in the partnership is liable jointly for all debts and obligations of the partnership
• after death the estate of the deceased partner is also liable for debts and obligations (Section 9 of the Partnership Act 1890)
• Section 17 of the Partnership Act 1890: A partner is not liable for anything done before he/she became partner

What happens if a partner wants to leave (at any time)?

• the partnership has to be dissolved, even if there are more than 2 partners
• the assets then divided
• the leaving partner can immediately work for firms’ competitor or set up again (in the absence of restrictions in a partnership agreement)
• unless partners agreed otherwise, any of them have the right to give notice to colleagues that he/she is dissolving the firm without notice. They could dissolve the partnership in matter of hours