Working through anyone’s death is usually very difficult for family and friends. Even if the deceased loved one was proactive about personal estate-planning, it can still be painful to see all of a person’s assets be distributed to different people. For those individuals running a company, they frequently wonder - What happens to my company when I die? With the death of a company owner comes the loss of extensive knowledge about the business and the industry as a whole. It can leave a huge gap in knowledge and cause confusion in those remaining because they now must figure out how to either keep operations running or start scaling down everything for the last time while working with tax authorities and any creditors.
One of the biggest questions a lot of business owners have concerns the future of their company if they happen to pass away. What happens to a business after the death of the owner depends on the structure of the business.
What Happens to Sole Proprietorship's When You Die?
Sole proprietorships are somewhat unique as a business structure because there is really no distinction between the owner and their business. As a result, the business goes away once the owner dies.
The executor of an estate then goes and cancels business licenses and registration, makes sure all taxes are paid, oversees the sale of any assets and the final payouts to any creditors. However, if the owner authorized someone to keep things going after their death, or if their heirs wanted to jump in and continue business operations, the operation could conceivably continue.
What Happens to Corporations When an Owner Dies?
Corporations are a bit more complicated. They do not automatically end when an owner dies. After the death of an owner, control of the entity then falls to those named in the person’s estate plan. The company could also be distributed as stock if the owner was the majority shareholder or the sole person in control. Problems can arise if those in the estate have no interest in taking on the company’s operations or if they have no idea about how to keep things up and running.
What Happens to Limited Liability Companies (LLCs) When an Owner Dies?
Since LLCs have an operating agreement at their foundation, the steps to take after the death of a company’s owner should be specifically spelled out in the document. If the agreement says operations can keep going on, the members of the LLC can vote to let new members in.
If there’s not a lot of detail in the operating agreement, then state law will decide the future of the LLC. In this scenario, many states just opt to dissolve the LLC and liquidate the assets.
What Happens to Partnerships When an Owner Dies?
The death of a partnership owner usually results in the dissolution of business activity unless there was some sort of formal partnership agreement that was signed.
Like an LLC, partnerships necessitate some sort of written agreement. This gives an opportunity for those involved to work through the scenarios of someone passing away, and also lets everyone decide if they would want to keep the business open if an owner dies.
Why This Matters...
Unlike sole proprietorships, which end when the owner passes, corporations, partnerships, and limited liability companies can continue to operate if agreements have been set in place in advance. However, even the death of a sole proprietor does not necessarily have to spell the ending of the business venture. With advanced planning, the company can be operated by another interested individual, whether that’s another family member or someone outside the family.
With a little planning, you won't have to wonder - What Happens to my company when I die?
If you have questions about planning for the continuation of your business once you pass, schedule a consult with estate planning and administration attorney Stephen Thienel today. Mr. Thienel has decades of experience assisting clients in assisting individuals with their estate plans throughout, Maryland, Virginia, and the District of Columbia.