What Happens to a Business When the Owner Dies Without a Succession Plan?
When a business owner passes away, one of the two things happens:
- A succession plan is put into motion; or
- If there is no succession plan, what happens to the business depends on the company’s structure.
When a business owner does not have a succession plan, their family members and business partners are being kept in the dark about what happens to the company following the owner’s passing.
Why You Need a Succession Plan
Passing away without a succession plan can dramatically impact operations or even halt them altogether. Statistically speaking, more than half (58%) of business owners do not have a succession plan.
If you own a business, you need to understand that no one is immortal. It is important to consider creating a succession plan to give your business partners and family members peace of mind. Contact our wills & probate attorneys at Suncoast Civil Law to help you draft a succession plan that meets your needs and suits your unique situation.
While anyone can benefit from creating an estate plan, the importance of having a plan is even greater if you own and operate a business. Some of the reasons why you need a succession plan include:
- You need to ensure that your business continues operating after your passing;
- You need to ensure that the value of your business is determined properly;
- Your business needs to pay any debt and estate taxes upon your death; and
- With the help of professional guidance, you can determine the best course of estate planning for your business.
What Happens When You Die Without a Succession Plan?
As mentioned earlier, what happens to your business if you die without a succession plan depends on the structure of your company:
- Sole proprietorship. If you are the sole proprietor, when you die, your business dies with you. After your passing, your estate will liquidate the business’ assets to pay off business debts and then be distributed among your beneficiaries.
- A corporation. When one of the owners of a corporation dies, their ownership in the company is automatically transferred to their estate. When this happens, the decedent’s estate becomes the new owner of their shares until the shares are distributed among the beneficiaries.
- A limited liability company (LLC). Since LLCs are bound by an operating agreement, the agreement determines what will happen in the event of the death of one of the members. If the agreement lacks provisions specifying what happens after an LLC member dies, the decedent’s interest will be distributed according to their will or Florida’s intestacy laws.
- Partnership. If your business was formed as a partnership, what happens in the event of the death of one of the partners depends on whether the partners signed a partnership agreement. If there is no partnership agreement, the partnership is automatically dissolved upon the death of one of the partners. If you want your business to continue operating after your passing, you need to create a partnership agreement that includes provisions for the acquisition or sale of your interest upon your death.
Speak with our Sarasota wills & probate lawyers at Suncoast Civil Law, to help you with creating a succession plan that will keep your business on track even after your passing. Call at 941-366-1800 to schedule a free consultation.