Status Of A Partnership After A Partner Passes Away

When a partner passes away then the partnership ceases. The remaining partner should ensure that the business is evaluated (which includes business stock, fixtures and fittings, outstanding debtors and creditors, cash on hand, cash at bank, etc.). Since you were in equal partnership with the deceased, 50% will belong to you and the remaining 50% will belong to the heirs of the deceased partner. The deceased’s heirs are now entitled to request their share of inheritance from the partnership or alternatively, they may enact a new partnership with you (the remaining partner) in proportion to their share of inheritance.

وَإِذَا مَاتَ أَحَدُ الشَّرِيكَيْنِ أَوْ ارْتَدَّ وَلَحِقَ بِدَارِ الْحَرْبِ بَطَلَتْ الشَّرِكَةُ  (العناية شرح الهداية –فصل في الشركة الفاسدة)

Now, if the heirs enact a new partnership, but wish to remain as silent partners and you continue to work as a working partner, then this option is also acceptable. The heirs may then reach an agreement with you in regards to sharing the profits of the business. They may allocate a higher profit ratio to you since you are a working partner and a smaller profit ratio for themselves as they are silent partners; since a partner in a business partnership is not entitled to a salary. However, the equity (shareholding in the business) will not be affected as a result of changing the profit sharing ratio.

The surviving business partner will shoulder no other responsibility except paying the heirs their dues from the partnership (if they prefer to opt out), or enacting a new partnership with them as explained above, depending on the option they choose.