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Under the Partnership Act 1890, a general partnership is automatically dissolved when a partner dies — unless the partnership deed contains specific continuation provisions. Most modern partnership agreements do include such provisions, allowing the partnership to continue without dissolution. If there is no deed, the default position under the 1890 Act applies: dissolution and winding up. LLP members are governed by their LLP Agreement, not the Partnership Act, and have much greater flexibility.
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The death of a business partner is both a personal bereavement and a potential business crisis. What happens next depends almost entirely on what is written in the partnership deed — or, if there is no deed, on default legislation that may produce results nobody wanted. This guide explains the legal position and the practical steps for surviving partners and executors.
The Partnership Act 1890 is the statute that governs general partnerships in England and Wales where there is no written partnership agreement (or where the agreement does not address a particular situation). The Act's default position on the death of a partner is stark: the partnership is dissolved.
Under section 33 of the Partnership Act 1890, subject to any agreement between the partners, every partnership is dissolved by the death of any partner. Dissolution does not mean the business immediately ceases — it means the partnership enters a winding-up process. The business continues only for the purposes of winding up: completing work in progress, collecting debts, paying creditors, and distributing the surplus to partners (or their estates).
This default position is often not what anyone actually wants — surviving partners typically want to continue the business without disruption. This is why having a well-drafted partnership deed is so important. In the absence of a deed, the surviving partners and the executor of the deceased partner need to reach agreement on how to proceed, which can be time-consuming and contentious.
If the partnership is dissolved, the surviving partners are entitled to carry on the business to wind it up, but not to take new partners or expand the business. All partners (including the deceased's estate) remain jointly and severally liable for partnership debts incurred before the date of dissolution.
Most professional partnerships and any partnership that has sought legal advice on its structure will have a written partnership deed that contains specific provisions for what happens on the death of a partner. These typically include:
The first step for any surviving partner is to locate and carefully review the partnership deed. If the deed has not been reviewed recently, it may not reflect the current situation or the partners' current intentions. Seek legal advice from a solicitor specialising in partnership law on the interpretation of the relevant provisions.
Important:
If you cannot locate the partnership deed, check with the business solicitors who set up the partnership, the accountant, and Companies House (if the partnership was registered). A deed in force at the date of death governs the position even if it pre-dates the death by many years and has never been updated.
The deceased partner's share in the partnership passes to their estate. In a partnership (unlike a limited company), there are no shares — instead, the partner had a capital account (reflecting their net investment in the business) and an income account (reflecting their share of profits and drawings). Together, these represent their economic interest in the partnership.
The valuation of this interest is typically the most contentious issue between the estate and surviving partners. The key components are:
An independent accountant or business valuer should be instructed to produce a formal valuation. Both the surviving partners and the executor should be represented, and if they cannot agree on a single joint expert, each side may instruct their own valuer.
LLPs (formed under the Limited Liability Partnerships Act 2000) are governed by their LLP Agreement rather than the Partnership Act 1890. The LLP itself is a separate legal entity — like a company — and does not automatically dissolve when a member dies. This gives LLPs significantly more flexibility than general partnerships when dealing with the death of a member.
The LLP Agreement will typically govern what happens to the deceased member's membership interest on death. Common provisions include:
Professional LLPs (law firms, accounting practices) often have detailed succession provisions in their LLP Agreements, including arrangements for the purchase of the deceased member's share through an insurance-funded buy-out. Review the LLP Agreement carefully and take legal advice.
Goodwill is often the most valuable asset in a professional partnership — particularly for solicitors, accountants, surveyors, and other established professional practices. The treatment of goodwill on a partner's death has both legal and tax implications.
For IHT purposes, the deceased partner's share of goodwill is an asset of the estate and must be valued at the date of death. Whether Business Property Relief (BPR) is available to reduce the IHT charge depends on whether the partnership constitutes a "qualifying business" under the Inheritance Tax Act 1984. Most trading partnerships (but not investment partnerships) will qualify for 100% BPR, meaning the goodwill value may be exempt from IHT entirely.
For the surviving partners, paying goodwill to the estate is treated as a capital payment. If the buy-out is financed over time, the payments are typically treated as capital rather than income in the hands of the estate. The tax treatment of goodwill payments is complex and specialist tax advice should be sought, particularly for professional practices where goodwill values may be substantial.
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