When two people form a business partnership, very likely they are not thinking about the future death of either individual. And if both reach retirement age before they formally dissolve the partnership or company, it is not an issue. However, life throws curve balls and death is often unexpected as it can occur long before reaching advanced age. When this occurs, the repercussions can be far and wide, including the effect it has on the business partnership. The probate process can exacerbate this situation, creating havoc for the surviving partner, the business at large, the employees, and their customers. These scenarios can be prevented with the help of an estate planning attorney when both partners are still alive and of sound mind.
Creating and Maintaining a Partnership Agreement
A great number of small businesses begin as an informal agreement between two people who develop an idea for a product, service, or company. Though they may eventually register their company, they may not develop a formal, written partnership agreement. Perhaps they do not think this is necessary as they are enthusiastic and much like a young couple that does not wish to create a prenuptial agreement because the idea feels awkward. And as the business grows and time goes on, the thought of hiring an attorney to create a formal partnership does not enter their minds. However, this is when it is more important than ever. Even if a partnership agreement is in existence, it is necessary to update it from time to time to ensure its accuracy.
The Dangers of Not Having a Partnership Agreement in Place during Probate
The goal of a partnership agreement is to clarify the rights and responsibilities of each partner. This can simplify matters, particularly when there is disagreement. Before, during, or after the probate process, spouses and other potential heirs of the deceased may have a different view of what they are entitled to receive on behalf of their relative, the former partner. When there is a partnership agreement in place, the surviving partner can refer to this legally binding agreement. It can prevent litigation and resolve issues with family members who may not have a clear understanding of how the business works and how profits are generated. Moreover, if there is not insurance coverage to protect the risks associated with the loss of a partner, and accounts receivables may be lagging due to the delayed payment terms with customers, the deceased’s family members may demand funds that simply are not available. A partnership agreement may not solve all of these issues, but it can remove a significant burden off the shoulders of the surviving partner who may also be grieving the loss of the deceased. It can also protect them as well as the company until it is dissolved or otherwise handled as per laws and if there are additional partners.
If you would like to know more about how probate can affect a business partnership, contact a probate lawyer.