If you’re a business owner, you may wonder what will happen to your company after you pass away. The good news is, that with proper planning now, that can be entirely up to you. Unfortunately, very few business owners have a succession plan in place. When a business owner passes away without a set plan for what happens next, there are laws that are in place that will determine the fate of your business. If you have a specific vision for your business after your passing, it’s important that you work with a professional business attorney now to make sure your wishes are carried out.
Even after an owner passes away, a corporation will go on. If you do not have a succession plan in place for your shares of the corporation, they will go to your estate. How those shares will be divided will depend on how the rest of your estate is distributed. The shares could go to a single heir or to multiple people. If you were a majority shareholder in the company, this could be an issue if your heirs are either not familiar or not interested in your business.
Limited Liability Companies (LLCs)
In the case of an LLC, there should be an operating agreement in place that dictates what will happen to the company when one of the members passes away. If said operation agreement allows, a new member may be voted into the LLC after one of the members passes away. However, if no such clause exists in the operation agreement, then the fate of the business will depend on your state’s laws. In some states, dissolution of the LLC and distribution of all company assets is required in this case. If you’re concerned about the future of your LLC, it’s important that your operation agreement specifies what should happen after you pass.
Partnerships or Limited Liability Partnerships (LLPs)
Like an LLC, LLPs are required to have an operation agreement in place. Chances are, there should be set instructions for what happens to one party’s interest in the company after they pass. In many cases, when an owner in a legal partnership passes away, the business does not have to be dissolved. Instead, other owners of the business can purchase the deceased owner’s interest in the company. It’s a good idea for LLPs to have life insurance on their owners for the specific purpose of purchasing their interest in their company from their estate after they pass away.
In the case of a sole proprietorship, the business will typically die with their owner. Once the owner passes away, their estate will liquidate any company assets, pay off debts related to the business, and distribute anything that is left over to the owner’s heirs according to their will. If you operate as a sole proprietorship, it’s important that you have a will in place to determine what happens to your assets, otherwise, they will be distributed according to your state’s probate law. This could be a huge headache for your heirs.