What happens when a partner dies within a limited company?
When one of the partners of a limited liability company dies, the other fellow members may take any of the following acts:
If otherwise not stated in the partnership agreement, they should continue with one or more heirs of the deceased.
If a term is established in the bylaws for any of the partners who could obtain shares of the deceased partner within the term, then partners may acquire these.
The shares of the deceased partner who wishes to acquire these can be purchased by the commercial value of these at death.
The company will continue with one or more heirs of the deceased partner, unless otherwise specified. However, the bylaws may provide that within those mentioned, one or more of the surviving partners are entitled to acquire shares of the deceased, the market value at the date of their death. If there is not a reached agreement on the price and payment, terms will be determined by experts appointed by the parties.
If there are several partners involved who will acquire the shares, they will be distributed among them in proportion to those held in society.
Keep in mind that when acquiring shares of the deceased by the other partners, it is necessary under the necessary provisions that the period provided in the bylaws is met, so that other members can acquire the shares.
Make preparations for these kinds of events. The resolution of shares within a private business if one of the shareholders dies is a crucial problem that company directors and owners need to discuss and have correctly recognised. It is not the kind of thing that anguished families and co-directors should need to deal with after a death. There are lots of different possible provisions, which include:
â€¢ A previous arrangement that the shares can pass to specific people, such as the shareholder’s spouse or children and so on.
â€¢ Pre-emption rights in support of current shareholders (or some of them)
â€¢ Measures to buy the deceased shareholder’s interest, to make estimates on the valuation and possibly time to pay
â€¢ A cross-option contract. This is made amongst the shareholders for the sale and acquisition of a late shareholder’s shares and also occasionally those of the family members too. This in tandem with life insurance policies to deliver the money that pays for the shares, should the situation arise.
If you found this article helpful you can read more insightful blog posts in our company formation blog section.