Business Partnership Succession
Peter McGahan
Monday 16th February, 2026.
IT’S business, and a bit technical but it needs to be. Stay with me.
When there is a death in a business you discover that a partnership can be profitable, busy and well-run, but still be dangerously fragile.
Under the Partnership Act 1890, the default position is stark: when a partner dies, the partnership is automatically dissolved. That may not be what anyone intended or what the partnership agreement says. If your documentation is thin, outdated, or silent on key points, the law will step in.
Second problem? Ownership and control.
On death, the deceased partner’s family will usually inherit the right to the value of that partner’s share. In most professional and trading partnerships, a spouse or adult child cannot simply join the firm - they may not be qualified, regulated, or acceptable to the remaining partners. So, you end up with a family who has rights to value but no route to involvement and surviving partners who need continuity but may be forced into negotiation at the worst possible time. Great!
The surviving partners may need to buy the deceased’s interest quickly to keep control and function profitably. But if there is no clear mechanism, the price can become an argument, the timetable a dispute, the funding a crisis. The family may want a lump sum now. The partnership’s cash may be tied up in work in progress, debtors, or property.
Or the opposite happens. The family does not get paid properly, resentment builds, and what should have been a respectful exit becomes a legal problem clawed out in slow motion.
In principle, I suppose there are three solutions.
The first is provision via a Will. Each partner leaves their partnership interest to the co-partners, and separately takes personal life cover, written in trust for the family, to replace the value.
It is rarely robust. A Will can be changed at any time, privately, without telling the other partners. Hmmmm. That means certainty is missing - and certainty is the whole point. Some people try to tighten this with identical Wills. That carries its own risks.
The second route is automatic accrual. This is where specified assets are set to pass automatically to continuing partners on a trigger event, without payment. The attraction is speed and simplicity - ownership moves without a sale and without haggling at a vulnerable moment. The obvious drawback is equally clear: “without payment” only works if the family is otherwise compensated.
Which brings us to the third, and in most cases the preferred, route - an agreement for sale and purchase of the departing partner’s business interest, funded properly.
This is the partnership equivalent of what company owners often do with share protection. You put in place a binding agreement which says what happens on death, serious illness, disability, or retirement. You also arrange the money, commonly using life assurance (and sometimes critical illness cover, depending on the agreed triggers). If the agreement is structured correctly, it can provide certainty that the purchase happens, and it should avoid adverse tax consequences.
The point is not just “having insurance”. Insurance without the legal agreement is just a payout with no map. And a legal agreement without funding is a chocolate fireguard.
Important: Limited liability partnerships (LLPs) are corporate entities for legal purposes, but they behave like a collection of individuals for tax purposes. That dual nature can confuse life assurance planning and trusts, particularly when people start mixing up keyperson cover with succession planning.
Keyperson cover is about protecting profits and continuity. Succession planning is about who owns the business interest after a death, and how the family gets paid. If the key person is an employee of the LLP (not a member), an LLP-owned policy can make sense. But if the key person is a member, an LLP-owned policy creates a complication: the member’s estate is entitled to their proportionate share of the policy proceeds, reflecting their capital account.
That is often the opposite of what you want.
For succession in LLPs, an option agreement supported by life assurance held under an appropriate trust is the practical route - and you must get the terminology right. “Standard” documents that use the wrong language can cause real problems.
If your firm has changed structure - for example from a conventional partnership to an LLP - review everything. Old arrangements often stop fitting quietly, then fail loudly.
Death is not a remote risk. It is a certainty with an unknown date. The sensible question is whether your partnership agreement, your succession plan and your funding are built for that certainty.
If you have a query on succession planning, please call 01872 222422 or email info@wwfp.net
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
