2026-09-20 · 28 min read

What happens to a partnership when a partner dies

What happens to a partnership when a partner dies depends on RUPA, the UK 1890 Act and your agreement — dissociation or dissolution, buyouts, banks, tax.

In the United States the firm usually survives: under the Revised Uniform Partnership Act a partner's death is an event of dissociation, and section 801 says a partnership is dissolved "only upon the occurrence of" a closed list of events that does not include a partner's death in a partnership at will. In the UK the default runs the other way: section 33(1) of the Partnership Act 1890 dissolves the firm as regards all the partners — but only "subject to any agreement between the partners". Which default you actually live under is settled by two documents most partners have never re-read: the partnership agreement, and the bank mandate.

A note on numbering before the citations start. The RUPA and ULLCA text quoted below is taken from Iowa's enactments, where subsections run (1), (2), (3) rather than (a), (b), (c). Most states have enacted some version of these uniform acts, but wording and section numbers vary, so check your own state's statute before relying on a number.

Does the partnership end automatically, or does only the partner leave?#

Under RUPA, only the partner leaves. Section 601(7) dissociates an individual partner on "the partner's death", listing it alongside the appointment of a general guardian or conservator and a judicial determination that the partner has become incapable of performing their duties. Dissolution is governed elsewhere, and section 801 is exhaustive.

Section 603 sets the fork: "If a partner's dissociation results in a dissolution and winding up of the partnership business, article 8 applies; otherwise, article 7 applies". Article 8 winds the firm up. Article 7 buys the departed partner's interest out and the business carries on. One sentence in your agreement decides which article you live under.

What does end immediately is control. On dissociation "the partner's right to participate in the management and conduct of the partnership business terminates". Nobody inherits it — not the spouse, not the executor, not the beneficiary named in the will.

Much of the published advice says the opposite because it was written against the older Uniform Partnership Act of 1914, still in force in New York, where Partnership Law section 62 provides that "Dissolution is caused: ... (4) By the death of any partner". If your agreement was drafted decades ago, or borrowed from a template, check which statute it assumes.

Why does a fixed-term partnership get 90 days and a partnership at will does not?#

Because RUPA treats a promise to stay for a term differently from an open-ended arrangement. In a partnership for a definite term or particular undertaking, dissolution occurs on "the expiration of ninety days after a partner's dissociation by death" unless, before that time, a majority in interest of the remaining partners agree to continue the partnership.

That is a hard deadline with a quiet trigger. Nobody files anything, nobody sends a reminder, and the firm dissolves by operation of law on day 91.

Missing it is not necessarily fatal. After dissolution a partnership "continues after dissolution only for the purpose of winding up its business" and is terminated when winding up is complete — a process, not a switch. And at any time before winding up finishes, all of the partners may waive the right to wind up, and "the partnership resumes carrying on its business as if dissolution had never occurred". The word doing the work there is all.

What is a UK "technical dissolution", and does the business actually stop?#

It is a change of cast, not a closing down. HMRC's Partnership Manual puts it plainly: "A partnership is the relationship between a particular combination of persons. Any change in those persons terminates that partnership". The old firm ends; the trade usually keeps running.

For tax, HMRC is explicit that the trade carries on where there is overlap: "where there is a partial change in ownership, so that at least one partner carries on the business both immediately before and immediately after the change, and the partnership carries on the same business both before and after the change, the business is treated as continuing". Only if all partners change is the business treated as ceased and recommenced.

Commercially, though, the survivor's hands are tied. Under section 38 the authority of each partner to bind the firm continues after dissolution "so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise". You can finish the job you are mid-way through. Signing next quarter's retainer is a different act, and without a continuation clause it sits outside that authority.

They inherit money and a claim, not a chair. Section 401 is one line on the point: "A person may become a partner only with the consent of all of the partners." A will cannot override it, because the will only moves what the deceased owned, and partnership status is not transferable property.

What an heir does get is a transferee's interest, and section 503 draws the line hard: a transferee receives the distributions the transferor would otherwise have been entitled to, and is not entitled, during the continuance of the partnership, "to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records". A spouse who now depends on the firm's profits has, by default, no right to see the accounts that produce them.

UK law reaches the same destination. HMRC states that partners "may assign their interest in a partnership, or they may confer it on death or retirement to another person, but that does not automatically make the assignee a partner" — a deliberate decision by the assignee and the surviving partners is required. Admission is a decision, taken later, by people who may be negotiating against the estate.

What happens to the premises, the van and the client list?#

Nothing — they were never the partner's to leave. Section 203: "Property acquired by a partnership is property of the partnership and not of the partners individually." And section 501 closes the gap: "A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily."

So a clause in the will leaving "my share of the workshop" to a child does not transfer the workshop. The estate's entitlement is a cash claim against the firm, which is why the valuation rules below decide far more than anything in the will does.

Where dissociation does not dissolve the firm, RUPA makes the buyout compulsory: "the partnership shall cause the dissociated partner's interest in the partnership to be purchased", at a price equal to what would have been distributable if the assets were sold at the greater of liquidation value or going-concern value without the dissociated partner, with interest running from the date of dissociation. That last phrase is where most disputes live: a two-partner consultancy is frequently worth far less without the partner who brought the clients.

The estate can start a clock. If no purchase agreement is reached within 120 days after a written demand for payment, the partnership must pay, in cash, the amount it estimates to be the buyout price, reduced by any offsets. That payment cannot arrive as a bare cheque: it must come with a statement of assets and liabilities as of the date of dissociation, the latest available balance sheet and income statement, a written explanation of the calculation, and notice that the payment is in full satisfaction unless an action is commenced within 120 days. There is protection running the other way too — the firm must indemnify the bought-out partner against all partnership liabilities, incurred before or after the dissociation, except liabilities incurred by the dissociated partner's own post-dissociation acts.

The UK default is stranger and older. Where the survivors carry on using the firm's assets without a final settlement of accounts, the outgoing partner or their representatives may choose between such share of post-dissolution profits as the court finds attributable to the use of their share of the partnership assets, or interest at 5% per annum on the amount of that share. If the partnership contract gives the surviving or continuing partners an option to purchase the interest and that option is "duly exercised", the profit entitlement stops — but a partner who does not comply in all material respects with the option's terms stays liable to account. Meanwhile the amount owed is a debt accruing at the date of the dissolution or death, and on a final settlement assets go first to outside creditors, then to repay partners' advances, then capital, and only then is any residue split in profit shares.

The two defaults, side by side#

Question on the first Monday	RUPA (adopted in most US states)	Partnership Act 1890 (UK default)
Does the firm dissolve?	No, for a partnership at will — it is dissociation, and section 801's dissolution list is closed	Yes, "as regards all the partners", unless the agreement says otherwise
Who can keep it going?	A majority in interest within 90 days in a term partnership; after dissolution, all partners waiving winding up	The agreement. Without one, authority extends only to winding up and finishing unfinished transactions
Does the estate get a say in decisions?	No — management rights terminate, and a transferee gets no management, information or books	No — conferring an interest does not make the assignee a partner
What the estate is owed	Greater of liquidation or going-concern value without the dissociated partner, plus interest	A debt accruing at the date of death, plus profits on the share or 5% interest, at the representatives' option
Is there a clock the estate can start?	Yes — 120 days from a written demand before the firm must pay its own estimate	No statutory clock; the profits-or-5% entitlement runs until the share is paid out
Estate's exposure to debts	Firm must indemnify against liabilities before and after dissociation, except the dissociated partner's own later acts	Estate is not liable for partnership debts contracted after the date of the death
Can the firm still be bound by the absent partner?	Yes, for two years, absent notice, capped by a statement of dissociation plus 90 days	Yes — third parties may treat apparent members as partners until they have notice

Who can sign now, and what can still bind the firm by accident?#

Surviving partners tend to learn this from a supplier rather than from a solicitor. For two years after a dissociation that did not dissolve the firm, the partnership can still be bound by an act of the dissociated partner where the other party reasonably believed that person was still a partner and had no notice of the dissociation. Standing arrangements signed in that partner's name, suppliers who never heard, a landlord who keeps dealing with the old contact — each is live exposure.

The cheap fix is a filing. A partnership or dissociated partner may file a statement of dissociation, and a person not a partner is deemed to have notice ninety days after it is filed. Ninety days of deemed notice for the price of one form is the cheapest risk reduction on this page. In the UK the equivalent duty is practical rather than statutory: third parties may treat all apparent members of the old firm as still partners until they have notice of the change.

Internally, a two-partner firm can seize up fast. Ordinary-course decisions go by majority, but an act outside the ordinary course of business, and any amendment to the partnership agreement, may be undertaken only with the consent of all of the partners. A sole survivor is a majority of one for routine matters and a permanent deadlock for anything else — including amending the agreement to fix the problem. Worth knowing too: unless the agreement says otherwise, each partner is entitled to an equal share of the profits regardless of capital contributed, so an unwritten "she put in more, so she takes more" understanding does not survive the drafting.

What happens to the bank account and the signing mandate?#

Accounts freeze on notification, not on the date itself. HSBC states that once it is notified, all sole accounts held by the deceased customer will be frozen to protect them against fraud; it has a legal obligation to cancel standing orders and Direct Debits, and credit cards in the deceased's name are cancelled — including any secondary cards — although money can still be paid in. Joint accounts are transferred into the surviving holders' names and keep the same account number.

For business accounts the route depends on how many partners are left. NatWest's guidance describes converting the account to a sole trader account or adding a new business partner where one partner remains; where several remain, the partnership account may be able to continue, with the mandate updated to reflect the change, and if the business stops trading there is a 90-day window to conclude its affairs and close the banking facilities.

US deposit insurance gives a cushion the UK does not: under 12 C.F.R. section 330.3(j) the FDIC insures a deceased owner's accounts as if he or she were still alive for six months after death, so that families have time to restructure. Coverage during the grace period changes only if the accounts are restructured, and the FDIC will not apply the grace period where doing so would reduce coverage. Note two limits: this is deposit insurance, not access — the bank can still freeze the account — and there is no grace period on the death of a beneficiary.

One efficiency for whoever is making the calls: the Death Notification Service lets you notify a number of member organisations of a person's death at the same time, rather than contacting each bank and building society separately. Each member organisation then contacts you within 10 working days of the submission to explain next steps.

What does the IRS expect, and when?#

The partnership's own tax year keeps running, but the partner's does not. Section 706(c)(2)(A) closes the partnership's taxable year with respect to a partner whose entire interest terminates, "whether by reason of death, liquidation, or otherwise" — so the estate receives a short-period K-1 to that date.

If the firm is genuinely finished, a partnership terminates when all its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership, and the tax year ends on the date of termination. Then you file Form 1065 for the year you close, check the "final return" box, and check the "final K-1" box on each Schedule K-1. Timing is tight: Form 1065 is due the 15th day of the 3rd month following the date the tax year ended, and where the partnership terminates early the short-period return is due the 15th day of the 3rd month following the date of termination.

Three details change the arithmetic materially:

How the buyout is characterised. Section 736 splits liquidating payments to a deceased partner's successor into a distributive share or guaranteed payment, or a payment made in exchange for the partner's interest in partnership property — different treatment, different rate.
No step-up on the 736(a) slice. Section 753 treats amounts includible under 736(a) as income in respect of a decedent under section 691, so it is taxed to the estate or heir without a basis step-up.
Inside basis does not adjust by itself. Section 743(a) says partnership property basis is not adjusted on a transfer or on the death of a partner unless a section 754 election is in effect or the partnership has a substantial built-in loss immediately after the transfer. The section 754 election applies to the year it is filed and all subsequent years.

On the EIN: a partnership does not need a new one for a change in ownership that does not result in the termination of the partnership, but does need one if it ends one partnership and begins another, or if someone takes over to operate as a sole proprietor.

Finally, if the buyout is funded by insurance payable to the entity, read Connelly v. United States, 602 U.S. 257 (2024) before assuming the obligation cancels the asset. The Court held unanimously that "a corporation's contractual obligation to redeem shares is not necessarily a liability that reduces a corporation's value for purposes of the federal estate tax" — the proceeds counted as an asset that raised fair market value. Connelly concerned a closely held corporation and a share redemption, not a partnership buyout, so treat it as a warning about how entity-owned policies are valued rather than as a rule that transfers across directly.

What does HMRC expect?#

Start with who files. GOV.UK states that "the 'nominated partner' is responsible for managing the partnership's tax returns and keeping business records" — if that was the partner who has gone silent, the SA800 responsibility has to be reassigned before the next deadline, not after it. Partner changes are notified using forms SA401 for individual partners or SA402 for non-individuals, with SA400 registering a new partnership and registration forms due within six months of the end of the tax year of commencement.

VAT is the one thing that quietly looks after itself. Once a partnership is registered, no account need be taken of any subsequent changes in the composition of the partnership — the registration continues, with new partners added to the VAT2 and former partners removed from it.

For inheritance tax, Business Relief gives 100% relief on a business or interest in a business, including a partnership share, but for deaths on or after 6 April 2026 the 100% rate is capped at £2.5 million of combined qualifying business and agricultural property, with 50% relief above the cap, and the deceased must have owned the business or asset for at least 2 years. Unused allowance can transfer between spouses and civil partners, potentially giving a survivor up to £5 million. That cap was raised before it took effect: HMRC's original policy paper set a £1 million allowance from 6 April 2026 across combined 100% business and agricultural property relief.

Urgency comes from the liability side. In a general partnership "you and your partner (or partners) personally share responsibility for your business", including any losses the business makes and bills for things bought for the business. An unfinished contract is not an abstract problem.

How is an LLP, or an LLC, different?#

An LLP is not a partnership for any of this. Section 1(2) of the Limited Liability Partnerships Act 2000 makes an LLP "a body corporate (with legal personality separate from that of its members)", so the entity, its contracts and its bank account continue untouched. Membership itself ends: a person may cease to be a member "(as well as by death or dissolution)" in accordance with an agreement with the other members.

Two filing traps follow. Companies House must be told within 14 days of a change to a member's details, or of the appointment or termination of the appointment of a member (form LL TM01 for a termination). And the designated-member rule bites automatically: "Where a designated member ceases to be a member, they are automatically no longer a designated member. If this means the number of designated members then falls to one, or none, the law states that all members become designated members."

A US multi-member LLC taxed as a partnership borrows RUPA's structure. ULLCA section 602(7)(a) dissociates an individual member when the individual dies, but dissolution requires an operating-agreement event, the affirmative vote or consent of all the members, a judicial order, an administrative dissolution filed by the secretary of state, or ninety consecutive days during which the company has no members — a member's death is not itself a dissolution event. The personal representative gets the rights of a transferee, plus, for the purpose of settling the estate, the rights the deceased member had: money and visibility, not control. The single-member case runs on a different and much shorter clock, covered separately in what happens to my LLC if I die.

Then there is the two-member trap, which is a tax problem disguised as a simple buyout. Revenue Ruling 99-6 holds that when one person acquires all the ownership interests in an LLC classified as a partnership, the partnership terminates under section 708(b)(1)(A): the seller reports a section 741 sale of a partnership interest, while the buyer is treated as acquiring the underlying assets in a deemed liquidating distribution. The ruling builds directly on the scenario at hand — in Edwin E. McCauslen v. Commissioner, 45 T.C. 588 (1966), one partner in an equal, two-person partnership died and the survivor bought the interest from the estate, terminating the partnership. The Tax Court held the survivor had bought the partnership assets attributable to that interest, not the interest itself, and so could not succeed to the partnership's holding period in them — the holding period on those assets starts again the day after the sale.

What if it was a sole trader, not a partnership?#

Then there is no separate entity at all, and HMRC simply assumes someone keeps trading: "on the death of a sole proprietor, the executor or the administrator carries on the business of the deceased" and is registered as the taxable person. VAT Regulation 9 applies only to the person actually carrying on the business, so an executor who is not running it cannot be made subject to it. If after 12 months the estate is still unsettled, HMRC makes enquiries and may call for a completed VAT 1 or VAT 68 from whoever is carrying on the business.

Payroll does not follow automatically. A PAYE succession needs both conditions met — the ownership of the business changes from one legal entity to another and the new owner takes responsibility for the pay records of the old employer — and "a succession can only take place if the old and new employers agree to it". Employee liabilities do not evaporate either: HMRC's National Minimum Wage manual states that where a deceased employer was a sole trader the business is still liable to pay both the arrears to the workers and the penalty, and that the death of a director, partner or officer will not usually affect enforcement action.

In the US, the estate cannot keep using the old number: a new EIN is required where an estate operates a business after the owner's death.

What actually breaks in the first week?#

Statutes decide who owns what. Access decides whether anyone can trade on Tuesday. Work down this list in order.

Stop the mandate surprise. Confirm with the bank whether the partnership account keeps running or needs signatories updated; where only one partner remains, ask about converting to a sole trader account or adding a new partner, and note the 90-day window if the business is stopping.
Notify institutions once. Use the Death Notification Service to reach a number of member banks and building societies in one submission rather than calling each one; expect each member to come back within 10 working days.
Expect Direct Debits to stop. Rebuild the list of recurring business payments manually, because standing orders and Direct Debits on a sole account are cancelled on notification.
Cap the apparent-authority window. File a statement of dissociation to get deemed notice after ninety days, and tell customers, suppliers, the landlord and the bank in writing — without notice, the firm can be bound for two years.
Check the calendar if the partnership has a term. A majority in interest must agree to continue within 90 days, or dissolution happens with no filing and no warning.
Reassign the filing role. If the partner was the nominated partner, decide who now owns the SA800; notify partner changes on SA401 or SA402. For an LLP, the 14-day Companies House deadline is already running.
Find out who controls the domain. If the registrar account was in the partner's name, GoDaddy requires the Estate Administrator to supply a completed "Regain Access To My Account" form, legal documentation naming the administrator, a death certificate and government-issued photo ID, with up to 72 hours for initial correspondence.
Budget for the transfer lock. ICANN's Transfer Policy requires registrars to impose a 60-day inter-registrar transfer lock following a Change of Registrant, with the change approved by the Prior and New Registrant or a Designated Agent they authorise. Registrars may let the registrant opt out of the lock beforehand — ask yours before you change anything.
Work out who holds the email. If the partner was the only Google Workspace super administrator, the documented recovery route is domain control, not identity: the wizard directs you to add a CNAME record to your domain's DNS settings, with support-assisted recovery only if that fails. Whoever holds the registrar login effectively controls the company email — and the company email is usually the password-reset address behind everything else.

What should the executor do first?#

GOV.UK's step-by-step sequence starts: register the death, use Tell Us Once to notify government, then — further down the list — value the estate and check Inheritance Tax, apply for probate, and deal with the estate — probate being what you may need before you can deal with the property, money and possessions of the person who died. In the US the personal representative has three separate filings to line up: the deceased person's final income tax return, an estate income tax return on Form 1041 with an EIN obtained for the estate, and Form 56, Notice Concerning Fiduciary Relationship.

The tension is structural. The executor is working on a probate timetable; the surviving partner is working on a payroll run. The statutory clocks above — 120 days on a buyout demand, 90 days on a term partnership, 14 days at Companies House — do not wait for the slower one to finish.

Which is the argument for writing the handoff down while both partners can still compare notes: who the bank contacts are, which mandate needs changing, where the registrar and DNS logins live, who the nominated partner becomes. That is what Proceedly is built for — a check-in you answer on a schedule, and if it goes unanswered past a grace window, a person you name confirms before your encrypted handoff plan reaches the people who depend on you. It holds the instructions and where the keys live, never the passwords themselves.

FAQ — what else do partners and executors ask?#

Do we need a new EIN?#

Not for a change in ownership that does not result in the termination of the partnership. You do if one partnership ends and another begins, or if the survivor continues as a sole proprietor — and an estate operating a business after the owner's death needs its own EIN.

We have life insurance to fund the buyout. Is that settled?#

Not automatically. In Connelly the Supreme Court held unanimously that a contractual obligation to redeem shares is not necessarily a liability reducing the entity's value for federal estate tax, so entity-owned proceeds increased fair market value. That case was about a corporate redemption rather than a partnership, but how the policy is owned and how the agreement is drafted both matter — take advice before assuming the two cancel out.

What if the VAT registration was in the old partnership's name?#

It survives. Once registered, no account need be taken of any subsequent changes in the composition of the partnership; new partners are added to the VAT2 and former partners removed.

Does the estate have any leverage on a slow buyout?#

Yes — a written demand. If no purchase agreement is reached within 120 days of it, the partnership must pay its estimated buyout price in cash, accompanied by a statement of assets and liabilities, the latest available financials, an explanation of the calculation, and notice that the payment settles the obligation unless an action is commenced within 120 days.

Sources — where does each rule come from?#

RUPA and ULLCA section numbers below follow Iowa's enactments of those uniform acts; other states' wording and numbering vary.