Business Life After Death: What Happens When an Owner Dies?

Without a business succession plan in place, a number of events can happen to a business after the owner dies or suddenly becomes incapacitated, and a lot can depend on the business structure. 

Sole Proprietorships:

If the owner of a sole proprietorship dies, the business, like the rest of the deceased’s possessions and finances, becomes part of the estate or trust. Either the estate executor or the trustee will oversee what happens next. The business is generally considered closed, and its assets and debts become part of the decedent’s estate.

General Partnerships:

Depending on the intent and choice of the surviving partners, a general partnership can continue to operate after the death of an owner. Typically, a partnership agreement will cover what happens to the partnership if an owner unexpectedly passes away.

Corporations, Including S Corps:

In this instance, the estate becomes the owner of the stock and can run the business, or work with other shareholders. Any heirs inherit the owner’s shares, including the voting rights, if any. The new shareholders will also be responsible for paying estate tax, if applicable.

Limited Liability Corporations (LLCs):

As part of the formation of an LLC, business owners can stipulate in their operating agreement what occurs if an owner dies. If they do not, the ownership becomes an estate asset and the personal representative or trustee steps into the decedent’s shoes to run the business, pass it to heirs, and/or work with other owners to continue the business operation.

Statutory Partnerships like Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs):

Like with an LLC, partnerships must have terms in their partnership agreement about how to manage the death of a partner.

Probate:

As with other assets of the decedent, if a corporation, LLC, or partnership does not specify how the death of an owner or partner is managed, the assets must go through the will, trust, and/or probate court. Probate can be an expensive and drawn-out process that can tie up business assets for months or years, as well as cost a small percentage of the remaining assets. It also opens the risk for third parties to contest a will or estate plan and any business assets managed through probate.

Hackstaff, Snow, Atkinson & Griess has the expertise to create a business succession plan in place that protects your businesses large and small. Contact us today for a free consultation.