What Happens to My Business if I Die?

Posted by Matt Reilly on May 25, 2017 12:05:00 PM

The majority of small business owners don’t know what would happen to their business if they died. The short answer is: the way your business is legally structured determines what would happen. The long answer is: if you want something specific to happen to your business in the event of your death, you need to work with an attorney to set up your business (legally) to suit your plans.


What your plans might be can vary. Maybe you are a serial entrepreneur and you hope to sell your business as soon as it grows to a certain size. Maybe you’re building a family business to pass down from one generation to the next. Maybe it’s a joint venture with a good friend. Talking with an attorney about what your plan is (even if it will likely change) will give them insight into the best business structure for you.


There is a chance that you’re already where you need to be because of the legal structure (or size) of your business. Either way, it is well worth finding out.


Very Small Businesses or Stock Value

If you are the sole proprietor of a business that is worth less than $14,000, you can simply include it in your will as a gift to whomever you want, tax-free. Even if the business is not a sole proprietorship, if the portion of the business you own is worth less than $14,000 you may be able to leave that stock as a gift in a personal will. Again, it depends on the structure of the business.


Sole Proprietorship

With no other plan (or will) in place, a business that is a sole proprietorship ‘dies’ with its owner, so to speak. Its assets will be liquidated to pay any business debts, and what remains will be considered part of the estate, distributed in accordance with whatever law or will is relevant.


Corporation and S Corporation

When the business is established as a separate entity, such as a corporation, the owner’s shares become part of their estate upon their death, and are distributed by the relevant will or laws. If the owner had a majority stake, then their estate becomes the temporary owner of the business until it is distributed. Trusting in this process is not ideal and can lead to serious frustrations between family and business partners if the inheritors were not involved or interested in the corporation.


Limited Liability Company (LLC)

Because all LLCs have an “operating agreement” in place from the beginning, what happens to the company or an owner’s stock upon their death should already be defined. This may include ending the venture, or calling for a vote to end or continue the venture. The agreement could also be silent on the issue of an owner’s death, which would mean the relevant laws take precedence.


Partnership (including LPs & LLPs)

Like a sole proprietorship, a general partnership with no formal agreement ‘dies’ when one or more of the partners dies. With a written agreement, however, the venture can include terms which specify what happens to the deceased owner’s portion of the partnership. This might include the option for the remaining owners to buy the interest, provide life insurance to fund these purchases, and more.


Talk to legal counsel as soon as possible if you aren’t sure that your business is safe in the event of your death.


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