Unless the partnership agreement says otherwise, a Scottish partnership is automatically dissolved when a partner dies. Section 33 of the Partnership Act 1890 brings the firm to an end, the surviving partners must wind up its affairs, and the deceased partner’s executors are entitled to be paid the value of their share. A good agreement avoids this by letting the business continue.
When a business partner dies, it is a personal loss as well as a business problem for the other business partners. This guide explains what the law does by default, what a partnership agreement can change, what the deceased partner’s family is entitled to, and the practical steps surviving partners should take in the first few weeks.
In brief
- With no agreement to the contrary, the death of a partner dissolves the partnership (Partnership Act 1890, section 33).
- The surviving partners keep authority to wind up the business, finish existing work and collect debts (section 38).
- The executors do not automatically become partners. They are entitled to the value of the deceased partner’s share.
- The deceased partner’s estate remains liable for partnership debts incurred before death, but not for new debts incurred afterwards.
- A written partnership agreement, backed by life insurance, is the best way to keep the business running.
On this page
- Does a partnership automatically end on the death of a partner under the Partnership Act 1890?
- What the partnership agreement can change
- What happens to the deceased partner’s share?
- Is the deceased partner’s estate liable for partnership debts?
- Practical steps for surviving partners
- Life insurance, cross options and tax
- Planning ahead: a short checklist
- Frequently asked questions
Does a partnership automatically end on the death of a partner under the Partnership Act 1890?
Yes, if there is no written agreement or the agreement is silent. The death of a partner is one of the events the Partnership Act 1890 treats as ending the firm. Section 33(1) of the Partnership Act 1890 says that, subject to any agreement between the partners, every partnership is dissolved by the death or bankruptcy of any partner. This applies even in a large firm where only one partner dies.
In Scotland the effect is significant because a Scottish partnership is a legal person. Dissolution means that legal person stops trading and moves into winding up. If the surviving partners carry on the business, in law they are usually doing so as a new firm, which can affect contracts, bank mandates, leases and the title to any property.
The rules differ across the UK: English partnerships have no separate legal personality, so the consequences of a partner in a business dying are not identical there. The position is also different for a limited liability partnership. An LLP is a body corporate and does not dissolve when a member dies. The members’ agreement deals with what happens to the deceased member’s interest.
What the partnership agreement can change
Most professionally drafted partnership agreements override section 33. A typical continuation clause says the partnership will not be dissolved by the death of one partner and that the surviving partners will carry on the business. The agreement then sets out:
- Who acquires the share: usually the surviving partners in proportion to their own shares, or the firm itself, with ownership passing to them upon the death of the partner.
- How the share is valued: for example, by reference to the last accounts, a valuation at the date of death, or a fixed formula. Whether goodwill is included is a common point of dispute.
- When and how it is paid: often by instalments over one to three years so the business is not drained of cash.
- Interest: what interest runs on unpaid instalments.
- Insurance: whether partners must hold life insurance to fund the payment.
- Other exits: the same provision usually covers retirement, incapacity and expulsion, so the document works for certain events beyond death.
If you do not have a written partnership agreement, or yours was drafted years ago, our partnership agreement solicitors can put one in place or update it. It is one of the most important documents a firm can have.
What happens to the deceased partner’s share?
A partner’s share is an asset of their estate. In Scotland, the executor obtains confirmation from the sheriff court and then deals with the share in the same way as other assets. The executor does not step into the partner’s shoes. Under section 24(7) of the 1890 Act, no one can be introduced as a partner without the consent of all the existing partners, so heirs only become partners if everyone agrees.
Where the partnership is dissolved and the business is wound up, the firm’s assets are used to pay its debts, and the surplus is shared between the surviving partners and the estate. Where the surviving partners continue trading without settling accounts with the estate, section 42 gives the executors a choice: either a share of the profits made with the deceased partner’s capital, or interest at 5% a year on the value of the share. The amount due to the estate is treated as a debt owed at the date of death (section 43), unless the agreement provides otherwise.
Can the family inherit the business interest, and what about a spouse?
The family can inherit the value of the business interest, but not a right to become a partner. If the partner left a will, the share passes as the will directs. If there is no will, the rules of intestacy under the Succession (Scotland) Act 1964 apply, and a surviving spouse or civil partner has prior rights before the rest of the estate is shared.
There is an important Scottish point here. A partner’s interest in a firm is generally treated as moveable property, so a surviving spouse and children may be able to claim legal rights against it, whatever the will says. Unmarried partners have no automatic right to inherit, although where there is no will a cohabitant may be able to apply to the court within six months of the death. These rules can upset a carefully planned succession plan, so wills and the partnership agreement should be reviewed together.
Is the deceased partner’s estate liable for partnership debts?
Under section 9 of the 1890 Act, a partner’s estate is severally liable, in a due course of administration, for debts and obligations of the firm incurred while they were a partner, so far as those debts remain unpaid. However, section 36(3) protects the estate from liability for new partnership debts incurred after the date of death. The executor should still ask the surviving partners for clear accounts so that any liability can be identified before the estate is distributed.
Practical steps for surviving partners
- Read the partnership agreement. Check whether the firm continues, who buys the share and how it is valued.
- Speak to the executors. Agree how information will be shared and who will deal with the business interest. Early discussion avoids partnership disputes later.
- Secure the day-to-day running of the business. Update bank mandates, notify key clients and suppliers, and check any contracts that require consent on a change of partners.
- Tell HMRC. The partnership tax return and VAT registration may need to be updated, and a new nominated partner may be needed.
- Check leases and property. A commercial lease may name the deceased partner, and the title to property held by partners as trustees may need a deed of assumption.
- Instruct a valuation. Use the method in the agreement, or agree one with the executors.
- Seek advice early. Speak to your accountant on tax and accounting, and to a solicitor on the legal steps, including any transfer of the share to the partners who intend to continue.
Life insurance, cross options and tax
The biggest practical problem on the death of a partner is usually cash. The estate wants to be paid, and the surviving partners need funds to pay. Many firms address this with life insurance policies written in trust for the benefit of the other partners, so the insurance pays out directly to those who must buy the share.
Cross option agreements are often used alongside insurance. They give the surviving partners an option to buy, and the executors an option to sell, rather than creating a binding obligation to sell on death. That structure is chosen with Inheritance Tax in mind, because a binding contract for sale at the date of death can affect Business Relief. From 6 April 2026, 100% Business Relief and Agricultural Property Relief are limited to a combined allowance of £2.5 million per person, with 50% relief above that, so larger partnership interests now need specific tax advice.
Planning ahead: a short checklist
- Put a written partnership agreement in place with a continuation clause, so there is a plan in place before anything happens.
- Agree a clear valuation method and payment terms.
- Consider life insurance in trust and cross option agreements.
- Make sure every partner has a will and a continuing power of attorney.
- Review the arrangements when partners join, leave or the business changes.
Our guide to business continuity planning in Scotland covers the wider legal toolkit, and our article on choosing the right business structure explains when an LLP or company may suit you better than a general partnership.
Frequently asked questions
Do the surviving partners have to close the business?
No. Even without an agreement, the surviving partners can buy out the estate’s interest and carry on the business as a new firm. They must account to the executors for the value of the share, and the old firm’s affairs still need to be wound up properly.
What if there are only two partners?
A partnership needs at least two partners, so the death of one partner in a two-partner firm ends the partnership. The surviving partner can carry on as a sole trader, take on a new partner or incorporate, but must settle with the deceased partner’s estate, which is entitled to the value of the share.
Can the executor take part in running the business?
Not as of right. The executor’s role is to collect the value of the share for the estate. They become involved in management only if all the partners consent.
How long does the estate have to wait to be paid?
That depends on the partnership agreement. Payment by instalments is common. Without an agreement, the amount is a debt due from the date of death, and interest or a share of profits may be payable until it is settled.
Does the same apply to an LLP?
No. An LLP continues despite the death of a member. The LLP members’ agreement governs what happens to the deceased member’s interest.
Speak to a partnership solicitor
Whether you are planning ahead or dealing with the unexpected death of a business partner, we can guide you through the legal steps with care. Call us on 0141 471 9166 or book a free consultation.
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About the author
Scott Stevenson, Associate Director, Complete Clarity Solicitors
Scott Stevenson is an Associate Director at Complete Clarity Solicitors in Glasgow, the firm behind Business Lawyer Scotland. He studied at the University of Strathclyde and helps business owners and commercial clients work through practical legal problems. Colleagues value his calm, logical approach under pressure. Before law, Scott played football professionally from the age of 17, and he is now also a FIFA licensed football agent.
This guide reflects Scots law as at November 2026. It is general information, not legal advice for your circumstances.