The death of a partner in a simple partnership (adi ortaklık) produces different consequences depending on the continuation clauses in the contract. Where there is no valid arrangement for continuing with the heirs or with the other partners, death, as a rule, leads to the end of the partnership and to the liquidation process. The heirs’ right is not limited to claiming back the money initially contributed; the partnership’s entire financial position and the legal position of the deceased partner must be assessed.
That the business stays open after the death does not show that all the heirs automatically become separate partners. Likewise, the surviving partner carrying on the activity does not extinguish the deceased partner’s economic rights. The legal basis of the continuation, the representation of the estate and the arrangement for rendering accounts should be clarified without delay.
Does a partner’s death end a simple partnership?
Under Article 639(2) of the Turkish Code of Obligations (TBK), if the contract contains no clause on continuing the partnership with the heirs, the partner’s death is a ground for termination. In addition, TBK Art. 633 regulates contract clauses that provide for the partnership to continue with the other partners upon certain events. These two models must be read separately from each other.
Termination does not mean that all rights and obligations relating to the partnership disappear at the moment of death. The purpose of the activity turns toward liquidation; the assets, the debts and the partners’ financial rights are calculated. Interim measures may also be needed for ongoing matters and for values that must be preserved.
What if the contract says only “the partnership continues”?
If it is not clear with whom the partnership is to continue, the contract as a whole, the intention of the parties and the other clauses are interpreted. Continuation with the heirs, continuation with the surviving partners and granting the heirs an option to join do not produce the same results. It cannot be accepted that the heirs’ financial rights have all ended on the strength of an ambiguous sentence.
It may also come into question that an arrangement for continuation is set up after the death by agreement of the persons concerned. The parties to it, the authority to represent, whether the inheritance has been disclaimed and, if necessary, any special form requirements must be examined. A comprehensive continuation agreement should not be inferred merely from short-term protective measures taken after the funeral.
What is the difference between continuation with the heirs and continuation with the surviving partners?
In the model of continuation with the heirs, the scope of succession to the deceased partner’s place and the representation of the community of heirs become important. It should not be assumed that each of several heirs can alone exercise all the powers of the former partner. If the contract provides for continuation only with certain heirs, the financial rights of the heirs left outside are also addressed separately.
In the model of continuation with the surviving partners, on the other hand, the carrying on of the business and the calculation of the deceased partner’s share are kept apart. Withdrawal, expulsion, liquidation of the share and unfinished matters within the framework of TBK Arts. 633–636 are examined. Saying “the business is continuing” is not a reason for postponing indefinitely the calculation of the right due to the heirs.
| Continuation arrangement | Basic position of the heirs | Main issue to examine |
|---|---|---|
| No continuation clause | Succession to the deceased partner’s rights in the liquidation process | The entire partnership account and representation of the estate |
| Continuation with the heirs | Continuation within the framework of the contract and the inheritance provisions | Joint action by several heirs |
| Continuation with the surviving partners | The departing partner’s share and the related financial rights | Valuation, release from debts and payment |
| Continuation with certain heirs | The different positions of those inside and outside | The intention to join and the rights of the other heirs |
Numan Tekelioğlu’s study on the subject addresses the relationship of continuation clauses to the community of heirs and the difference between the liquidation share and the departing partner’s share. This distinction is also useful in practice: liquidating the entire business and calculating only the deceased partner’s economic share are not the same process. A single calculation method should not be applied to all files without first determining the contract model.
Can a two-person simple partnership continue with one person after one person’s death?
A simple partnership requires at least two persons. If a partner in a two-person structure dies, even if it is possible for the surviving person to carry on the business, the simple partnership does not continue in the same form with a single person. Steps such as transfer of the business, a new partnership relationship, or liquidation and settlement of accounts must be addressed separately.
In particular, it is not correct to interpret short statements such as “the surviving partner owns the whole business” as meaning that the heirs lose all their economic rights without consideration. The validity of the contract, valuation, payment and the mandatory provisions of inheritance law are examined together.
Must the heirs exercise their rights together?
Under Article 599 of the Turkish Civil Code (TMK), the inheritance passes on death; where there are several heirs, the community of heirs under TMK Art. 640 comes into play. The principle of joint ownership has consequences for the rights included in the estate. A share of the inheritance expressed as a proportion and the authority to dispose independently of a specific business asset are not the same.
A certificate of inheritance serves to show who holds which share of the inheritance. However, this document alone does not settle the partnership account, the net value of the business or the ownership of a particular machine. The partnership contract and the financial records must be examined separately.
Can a single heir reach an agreement on behalf of the whole estate?
There is a difference between having a single heir and having only one of several heirs act. If there are several heirs, one person giving up all rights in the estate or making a general settlement of accounts without the necessary authority or representation arrangement may cause problems. Appointing a representative for the community of heirs under TMK Art. 640 may come into question under suitable conditions.
There are also possibilities for each heir to request that the rights of the estate be protected; however, a request for protection is not the same as an individual collection for oneself or a disposition over the entire estate. In lawsuits and settlements, the parties and the representation arrangement must be set up according to the nature of the claim. If there is a minor heir or an heir under guardianship, the conflict of representation and the necessary permissions are examined separately.
What steps should be taken immediately after the death?
TBK Art. 641 regulates notifying the other partners of the death and carrying on the affairs temporarily, in accordance with the rule of good faith, until the necessary measures are taken. The aim is to protect the assets, bring open matters under control and prevent unnecessary loss. This provision does not give the heirs unlimited authority to make new investments or borrow.
In the first stage, it is useful to preserve the records as of the date of death. Bank accounts, stock, contracts, receivables, debts, obligations to employees and ongoing projects should be listed. Physical keys and digital access should be managed in a manner consistent with the legal authority arrangement; records must not be deleted or changed unilaterally.
Does the authority to represent and do bank transactions continue?
TBK Art. 43 regulates the effect of death on the authority to represent; there are exceptions in terms of the parties’ agreement and the nature of the matter. For this reason, it should not be assumed that the former signature or access authority continues unchanged. The partnership contract, the power of attorney, the instructions given to the bank and the need for interim management are assessed together.
Whether the account is a personal account or one used for the joint activity is also important. It may be wrong to treat all of the money seen in the account as a personal inheritance or directly as the other partner’s money. The source of the money, its purpose of use and its accounting connection must be investigated.
How are disclaimer of the inheritance and the debt risk assessed?
A simple partnership relationship may not give rise to receivables alone; the debts and loss liabilities of the deceased partner may also be included in the assessment of the estate. TMK Art. 606 provides a three-month period for disclaiming an inheritance. The start of the period is determined by the rules on heir status and on learning; looking only at the date of death is not sufficient in every file.
Under TMK Art. 610, the heir’s conduct matters for the right to disclaim. Acts exceeding ordinary administration or the necessary carrying on of the decedent’s affairs, and concealing or appropriating estate property, may raise the question of loss of the right to disclaim. On the other hand, not every necessary protective act is automatically deemed an acceptance of the inheritance. The purpose and scope of the act must be examined.
Can an official inventory be requested if the debts are not known?
The official inventory route under TMK Art. 619 et seq. may be considered when its conditions are met. The provision on the one-month period for the application must be read together with the principles on the start of the disclaimer period. This route is not the same as merely looking at the business accounting; it concerns determining all of the estate’s rights and debts through a special procedure.
The judicial disclaimer provision for insolvency under TMK Art. 605(2) is also important when its conditions are met. However, general information such as “the business had many debts” should not be accepted as sufficient. The condition of the estate at the time of death and the conditions of its being known or officially determined must be made concrete. A partnership appearing to be valuable and the estate being free of debt are not the same.
How is the heirs’ liquidation share or departing share calculated?
At the outset of the calculation, the legal model that applies is determined. If the partnership as a whole is being liquidated, the arrangement in TBK Arts. 642–644 is taken into account. If withdrawal or expulsion arises because of continuation with the surviving partners, the share calculation and unfinished matters under TBK Arts. 634–636 become important.
Under TBK Art. 634, the share is calculated by a person with expertise in financial matters, as of the date on which partner status ended; if there is no agreement on the expert, appointment may be requested from the judge. This calculation cannot be reduced to multiplying the cash balance on the date of death by the inheritance share. The return of items whose use was relinquished, release from debts that are due and security for debts that are not yet due are also assessed.
Which financial items should be examined together?
- Cash, bank balances and collectible receivables.
- Stock, equipment and rights acquired for the common purpose.
- Credit, supply, rent and other debts.
- The partners’ advances and documented expenses.
- Previously received profit shares and personal withdrawals.
- Unfinished matters and their revenues and costs.
In valuing the business, care should be taken not to count the same item twice. For example, an asset and the sale receivable for that asset cannot both be entered as assets at full value at the same time. Receivables that cannot be collected, disputed debts, and the separation of personal assets from partnership assets may require expert examination.
| Subject of the account | Common mistaken assumption | Correct examination |
|---|---|---|
| Initial contribution | The same amount is necessarily refunded immediately | Debts, advances, contributions and losses are calculated together |
| Items in use | Everything in the business belongs to the partnership | Ownership is distinguished from allocation for use |
| Cash balance | It is the entire net value of the business | Receivables, stock and debts are also examined |
| Ongoing project | All rights are cut off by death | The account of unfinished matters is assessed |
| Inheritance share | An independent share can be taken from each asset | Joint ownership and the representation arrangement are observed |
Do all earnings after the death belong to the heirs?
A single answer cannot be given on this. The model by which the partnership continued, the matters begun before the death, the liquidation activities and the contributions of any new relationship formed afterward must be separated. The rights arising from unfinished matters under TBK Art. 636 are not the same as the earnings of a new activity.
The surviving partner’s continued use of the former partnership assets also cannot be left out of the account. On the other hand, the assumption that all turnover after the death will be shared directly at the deceased partner’s former ratio may not be correct either. The legal continuation model and the financial periods must be clearly separated.
What does the Court of Cassation decision show about liquidation?
In its decision dated 03.07.2015, E. 2015/6226, K. 2015/12428, the 3rd Civil Chamber of the Court of Cassation (Yargıtay 3. Hukuk Dairesi) examined the heirs’ claims and the need for liquidation following a partner’s death. In the case in which the surviving partner continued the activity, the decision emphasized that the dispute should be assessed within the framework of the partnership account and liquidation.
The decision shows that looking only at the initial contribution is not sufficient. However, the dates of death and of the contract in the case precede the entry into force of the new Turkish Code of Obligations; transitional law is also significant in the decision. For this reason, not all the assessments in the decision should be carried over unchanged to files with different dates; the applicable law and the scope of the claim must be determined separately.
How are the lawsuit, the request for an account and the statute of limitations handled?
The heirs must first determine which right they are seeking: information and documents, rendering of accounts, liquidation of the partnership, the departing partner’s share or collection of an established receivable are different claims. Dividing up the estate and taking the account of a simple partnership are also not the same lawsuit. The parties and the competent court are assessed according to this distinction.
Whether a simple partnership dispute is of a commercial nature is examined separately. The mere fact that heirs are parties does not move all lawsuits concerning the partnership account to the civil court of peace (sulh hukuk mahkemesi). The jurisdictional arrangement for claims such as appointing a representative for the community of heirs is different. It is important to determine the necessary parties and the authority to represent from the outset.
TBK Art. 147(4) provides a five-year statute of limitations for certain receivables arising from a partnership contract. However, which claim falls within this scope and when it falls due must be examined together with TBK Art. 149 and the related rules. It cannot be said that the period starts automatically on the day of death for all claims. The request for an account, liquidation and a monetary receivable should not be assumed to have the same starting point.
Related articles: Simple Partnership Agreement: Capital and Sharing of Profit and Loss; Proving a Simple Partnership Without a Written Contract; Simple Partnership Debts: Liability, Litigation and Enforcement; Management, Representation and Removal of Authority in a Simple Partnership; Withdrawal from a Simple Partnership and Expulsion of a Partner.
Conclusion
When a partner dies, the continuation clause and the arrangement for representing the heirs must be determined first. Protecting the assets, assessing the rights relating to disclaimer of the inheritance and drawing up the partnership account are complementary steps. When the continuation of the business and the heirs’ economic rights are addressed together, the risks of unilateral use and incomplete settlement of accounts can be reduced.
Frequently Asked Questions
Do the deceased partner’s children automatically become partners individually?
Not in every case. The continuation clause, the community of heirs and the scope of the contract are examined. It should not be assumed that each of several heirs will alone exercise all the powers of the former partner.
Can the surviving partner keep operating the business?
The steps necessary for protection and interim management can be taken. The legal basis for continuing the business on a lasting basis must be determined separately from the contract, the position of the heirs and any agreement made afterward.
Can the heirs demand the initial capital immediately?
In not every file must the initial contribution be paid back as it was and immediately. The liquidation or departing-share calculation, debts, expenses, advances and losses are assessed according to the applicable model.
Can the items in the business be divided directly among the heirs?
First it must be determined to whom the item belongs and whether it was left to the partnership as ownership or for use. Making a unilateral division without regard to the partnership account and the joint-ownership arrangement of the estate may cause problems.
Is the period for disclaiming an inheritance always three months from death?
The law provides a three-month period; the start is determined by the rules on learning and on heir status. Acts that may affect the right to disclaim and special circumstances must be examined separately.
Can the partnership contract remove the heirs’ rights entirely?
Continuation and settlement clauses can be drawn up; however, it cannot be concluded that the heirs’ economic rights are in every case removed without consideration. The validity of the contract and the mandatory inheritance provisions are assessed together.
Sources
- Law No. 6098, Turkish Code of Obligations, Arts. 43, 147/4, 149, 633–645.
- Law No. 4721, Turkish Civil Code, Arts. 599, 605–610, 619 et seq., 640–641.
- Law No. 6100, Code of Civil Procedure, Arts. 2 and 4; Law No. 6102, Turkish Commercial Code, Arts. 4–5/A.
- Court of Cassation 3rd Civil Chamber, 03.07.2015, E. 2015/6226, K. 2015/12428. Access to the decision may require an account.
- Numan Tekelioğlu, The Legal Position of the Heirs upon the Death of a Partner in a Simple Partnership (Adi Ortaklıkta Ortağın Ölümü Halinde Mirasçıların Hukuki Durumu), Ankara Hacı Bayram Veli University Faculty of Law Journal (Ankara Hacı Bayram Veli Üniversitesi Hukuk Fakültesi Dergisi), 2021, Vol. 25, No. 3, pp. 225–268.