Succession Planning: What’s Next When a Business Partner Dies?

by | Feb 25, 2021

Succession Planning: What’s Next When a Business Partner Dies?

By: Barry E. Haimo, Esq.

February 25, 2021

One of the most important parts of your business plan is figuring out what happens after a business partner dies. It’s known as business succession planning. 

So, what does happen after a business partner dies in Florida?

While there are a few specific options available, here in Florida when a partner passes, unless the governing documents say otherwise or planning is in place, they are automatically disassociated from the business. When the proper planning is in place, this usually happens one of three ways: 

  • The deceased partner’s estate assumes ownership of their partnership stake.
  • The remaining partners pay the estate in order to facilitate a transfer of the deceased partner’s share in the business.
  • A partner can buy the decedent’s share of the business based on a financial formula.

In the unfortunate circumstance that a written partnership agreement has not been executed before the death of a partner, things may quickly become more complex. Florida’s Uniform Partnership Act will then regulate what happens next for your business (or Florida’s Revised Limited LIability Company Act).

This could expose your partnership to unanticipated effects — a risk not many business owners are interested in taking. How can you avoid this? 

Seamless Integration Between Your Business and Personal Estates

Owners sharing a partnership in a business of any size need some form of an action plan to continue business activities in the event that one of them passes. 

It could be a buy-sell agreement or some other type of buyout scenario, and it can be executed in one of two ways. It may be either written as its own stand-alone document or incorporated directly into an existing operating agreement. 

Whichever path you collectively wish to take, your succession plan should outline agreed-upon terms for how each partner’s estate or the remaining partners are allowed to purchase or otherwise retain a deceased partner’s interest in the business.

If you intend to pass your portion of the business on to family members or other important beneficiaries, this intention should be included in the partnership’s succession plan to avoid any confusion between your business and personal estate planning execution after you’re gone.

Keeping the Family Business in the Family

Entrepreneurs who have created any kind of family-owned business typically intend to keep it in the family, and there are a number of provisions that can be implemented to do just that.

This can involve the retention of your business shares with family members — even when your family business has grown to include partners outside of your namesake. 

A succession plan can allow your willing spouse, children, or other important relatives to take control of your share of assets based on specific terms. Or it could provide for a buy-out agreement in which eager family members can purchase another not-so-interested family member’s shares.

There are even arrangements in which key employees you see as family and actual family members can share the responsibility of controlling your business in your stead.

The possibilities are endless, but without an actual succession plan created under the guidance of an experienced Florida business estate planning firm, your opportunities sharply decrease and the probability of success in the next generation is much lower.

Failure to Plan for Succession

While Florida intestate law typically dictates that shares in your partnership will likely land in a family member’s lap when you pass without planning, most of the time this is too much responsibility for them.

Most business owners’ spouses and children aren’t prepared to oversee their lost loved one’s stake in a company. On the other hand, being left without a guide map can leave those who are interested in obtaining control of the business in conflict with other partners. 

In either scenario, mismanagement of the business or a deceased partner’s share in it — or even the sale of their stake to an unknown party — could end in irreparable damage.

For help creating a well-thought-out succession plan that incorporates the needs of yourself, your beneficiaries, and your surviving partners, reach out to Haimo Law. Our mission is to help you achieve your business estate planning goals.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com

YouTube: http://www.youtube.com/user/haimolawtv

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