What Happens If a Partner Dies? Why Every LLP Needs a Buy-Sell Agreement and Key Person Insurance

A flat-style digital illustration shows two business partners seated across a table, signing documents beneath a large clipboard titled “Partner Agreement” with a handshake icon, symbolizing trust, structure, and planning in LLP relationships.

Plan for the People, Not Just the Profit

Most partnerships don’t fall apart because of internal conflict. They fall apart because no one planned for the inevitable.

Death. Disability. Departure.

And when that happens, the absence of a partnership agreement can be more devastating than the absence of the partner.

Two professionals sit across from each other at a light wooden table in a modern office. The woman, dressed in a navy blazer, listens attentively with her hands folded, while the man, wearing a gray tweed jacket, explains something while holding a document, symbolizing planning for people in sensitive business transitions.

The Founder’s Dilemma No One Talks About

Three founders build a promising business from scratch, no partnership agreement, no exit plan, just shared purpose, verbal understandings and trust. Years later, one dies unexpectedly and what held them together quietly starts to pull everything apart.

The business itself doesn’t collapse, it’s an LLP. Legally, it continues. But the cracks begin to show almost immediately:

     i.         The deceased’s estate is entitled to a payout.

    ii.         There’s no agreed method to value the deceased’s share.

   iii.         Cash flow is strained trying to settle that payout.

   iv.         The heirs have expectations. The surviving partners have different ones.

    v.         Everyone’s asking: What now?

And if instead of death, it’s disability, a long-term illness or mental incapacity?

There’s often no way to remove or buy out that partner unless they voluntarily resign. The business becomes legally gridlocked.

A Caucasian man with gray hair and glasses discusses a “Buy-Sell Agreement” document with a woman across a table. The woman listens seriously, hands clasped, while the man gestures toward the document, symbolizing the tough decisions founders face around partnership planning and succession.

Why the Default Law Isn’t Enough

Kenya’s LLP Act allows a firm to continue after a partner’s death but the rules are minimal:

     i.         Heirs don’t become partners.

    ii.         The estate gets paid the partner’s capital + profits, not goodwill or future value.

   iii.         There’s no automatic payout if a partner is incapacitated.

   iv.         There’s no built-in funding mechanism.

These rules protect structure, yes. But they don’t protect cash flow, fairness or continuity. They don’t handle the emotions or expectations that surface when something goes wrong.

The Two Tools Every LLP Should Consider

1.     Buy-Sell Agreement

A legally binding contract between partners that spells out:

              i.         What happens if one partner dies, is incapacitated or chooses to exit.

             ii.         Who buys the departing share and at what price.

            iii.         How valuation is done (fixed formula, independent assessment, etc.).

            iv.         Restrictions on transferring ownership to outsiders.

This agreement protects everyone, the business, the surviving partners and the deceased partner’s estate, from confusion and conflict.

2.     Key Person Insurance

A life or disability policy that the firm takes out on each partner. If a partner dies or becomes critically ill, the policy pays a lump sum to the business.

That cash can be used to:

     i.         Buy out the deceased partner’s share

    ii.         Cover recruitment and transition costs

   iii.         Keep the business stable during a difficult period

   iv.         Reassure investors and creditors of the firm’s resilience

A flat-style illustration displays two key documents side by side — a clipboard titled “Buy-Sell Agreement” and a paper labeled “Insurance Policy,” each with orange checkmarks below, emphasizing essential planning tools for LLP continuity and risk mitigation.

They Work Best Together — But Start with the Buy-Sell Agreement

Key person insurance gives you cash.

A buy-sell agreement tells you what to do with it.

Without an agreement, even a large insurance payout can cause fights, especially if the heirs expect ownership or if valuation wasn’t agreed in advance.

The bottom line, if You Don’t Decide in Advance, the Law Will Decide for You

And it won’t always be fair, or workable or aligned with your vision.

Leadership Means Planning for Absence, Too

We’ve seen businesses spiral not because of loss but because they had no plan for it.

A death. A disability. A quiet departure. What should have been a transition became a crisis. That’s not just a legal oversight. It’s a failure of foresight.

A buy-sell agreement won’t stop the unexpected. But it will stop the unexpected from taking your business with it.

If you co-own a business, especially in an LLP and there’s no exit plan on paper, now is the time. Not when something happens. Not when lawyers are called.

Now.

We’ll help you build it, calmly, clearly and before it’s too late.

Broline Ogombe
Founding Partner & Head of Strategy
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