Partnership protection

All general partnerships should have a partnership agreement, which ensures that the surviving partners are able to purchase, or otherwise acquire, the deceased partner's share of the business.

There are three main types of agreement:

Buy & sell agreement

This is the simplest option and binds the deceased partner's estate to sell its share of the business to the surviving partner(s).

Cross-option agreement

Also known as a ‘double-option' agreement, this gives the deceased partner's estate the option to sell his/her share and the surviving partner(s) the option to purchase that share. Should either side wish to exercise their option, the other must comply. The agreement would specify a timescale for the options to be exercised – normally within three to six months of death.

The main advantage of this type of arrangement is that it retains Business Property Relief (BPR) and all the inherent IHT benefits, as well as achieving the desired result for both parties.

Automatic accrual

A further alternative to buying and selling is for the partners to simply leave their respective shares to their fellow partner(s) in their wills. Alternatively, they could complete an automatic accrual agreement that does the same thing. This would mean that control of the partnership is in the hands of the surviving partner(s). The family of the deceased partner needs to be compensated because his/her share in the business does not now pass to them. Normally, the partners look after the family by taking out a life assurance policy on their own lives under trust for the benefit of their dependants. Part of the agreement is that should the policy proceeds be less than the value of the deceased partner's share, the surviving partner(s) make up any shortfall to his/her estate.

• What is the position in your partnership?
• What would the implications be if one of your colleagues were to die or was unable to work?