What Happens To A Florida General Partnership Upon A Partner’s Death?
There are a number of ways that two or more people can go into business together. The simplest method is to form a general partnership. Indeed, in the absence of any legal agreement or forming another specific type entity, such as a corporation, any association of two or more people for the purposes of engaging in some business is considered a general partnership under Florida law.
But how does a general partnership work in practice? And what happens if a partner dies? Does the partnership continue? Is the deceased partner’s estate responsible for keeping the business going?
How Do You Form a General Partnership?
Technically, you do not need to have any sort of written agreement to create a general partnership. The partners can simply make a “handshake” agreement to run a business together and split the profits and losses equally. Typically, a partnership will adopt a specific trade name to use in its business, and that needs to be registered with the Florida Department of State. And the Florida Division of Corporations does provide an optional “Registration Statement” that general partnerships can file to create an official record. But otherwise, there is no separate legal entity formed when creating a general partnership.
This can be a good thing and a bad thing. On the one hand, a general partnership does not require the formalities or paperwork of a corporation or limited liability company (LLC). On the other hand, a general partnership affords no liability protection to the partners. This means each general partner can be held personally liable for any business debts.
The Importance of a Written Partnership Agreement
Absent any specific agreement between the partners, the death of any partner legally will dissolve the general partnership. For example, say Glenda and Darrin form a general partnership to run a catering business. Glenda dies unexpectedly. If Glenda and Darrin never had a written partnership agreement–i.e., they relied on just a “handshake agreement” to run the business–then the partnership automatically dissolves upon Glenda’s death. Darrin can only take such steps as may be necessary to wind up the business–completing any work that is in progress, paying the partnership’s debts, and distributing half of any remaining assets to Glenda’s estate.
However, if there was a written partnership agreement in place, then the business may be able to continue even after one partner dies. A partnership agreement is a legally binding contract signed by the partners. The agreement can make special provisions for what to do in the event of an unexpected death–or simply if a partner wishes to leave or sell their share of the business.
Speak with a Florida Business Succession Lawyer Today
It is important to distinguish general partnerships from limited partnerships or limited liability partnerships. These are distinct types of legal entities where there is one or more general partners in addition to one or more limited partners. A limited partner takes no active role in the partnership’s business but retains some ownership rights, similar to a stockholder in a corporation. A general partnership, in contrast, is one where each partner is assumed to actively participate in the business and risks exposure for any debts incurred.
If you have additional questions about how a partnership may affect issues related to your estate planning, and you would like to speak with a qualified St. Petersburg business succession planning attorney, contact Legacy Protection Lawyers, LLP, today to schedule a consultation.
