When business owners pass away, LLCs and Corporations do not necessarily have to. If you are wondering what will happen to your business in Florida after you are gone, this article will hopefully clear your mind from doubts.
What Happens When a Business Owner Passes Away?
When a business owner passes away, what happens to the business will strictly depend on what that person planned for. If there is not a well-designed plan, there could be chaos for the decedent’s family, business associates, and obviously the business itself — which is completely avoidable if the right steps are taken.
If you own a business and have not planned for what will happen to it after you die, you should not feel alone – you are not. In Florida, Less than 30% of small business owners have an effective succession plan. When a business owner dies without a succession plan, what happens next will depend on how the business is structured. If you are worried about what will happen to your business in case you die – which is, sadly, always a possibility – the good news for you is that you can determine what will happen by taking the following steps:
- Step One: work with a probate attorney to create a succession plan that will guarantee the result that you are looking for.
- Step Two: establish a business structure for your company that suits your wishes in regards to tax and liability matters.
- Step Three: work the details of your succession plan within that business structure.
When a Business Owner Dies without a Succession Plan, Business Structure Rules
In a sole proprietorship, the business and the owner are basically the same. If the owner dies, so will the business. The business owner’s estate will liquidate the business assets to pay off any business debts, and anything remaining will be distributed in accordance with the decedent’s will. If the decedent did not have a will, the distribution will happen in accordance with Florida probate law. There will not be continuing income from the business and, if the business debts were substantial, there may not be much to distribute to the decedent’s heirs.
When a business owner dies, corporations do not. Upon the death of the business owner, that person’s estate would become the owner of his or her shares. If the decedent was the majority shareholder or the sole shareholder, the new owner of the business would be the decedent’s estate, at least until the estate is closed and the stock distributed in accordance with will or intestacy laws.
Limited Liability Company
LLCs are organized under the terms and regulations of an operating agreement, which generally specifies what will happen in the event a member passes away. If the operating agreement allows for continuation upon the death of a member, new members can be admitted through a voting process among the remaining members. If the agreement is silent, Florida law determines what happens when members of LLCs die, which typically entails dissolution and distribution of the business assets.
Partnership, Limited Partnership, and Limited Liability Partnership
If two people were general partners but did not have a signed formal partnership agreement, the death of one of them will legally dissolve the partnership, and all business activity will cease with the exception of the steps necessary to wind up the partnership.
However, the business does not necessarily have to end – it can be saved by the terms of a partnership agreement. One of the great strengths of partnerships is that their formation requires a written agreement, which forces the partners entering the agreement to talk about the rather difficult issue of what will happen in the event a partner dies and make sure the agreement includes the steps to be taken should this unfortunate case-scenario become a reality.
Work with a Lawyer
As stated above, the best way to ensure that your business continues the way you intend it to after you are gone is to make sure to have a solid succession plan and structure your business in such a way that it is clear for everyone what will occur in the event you pass away. However, although taking these steps might sound easy, in reality, it is not. There are complexities and hidden obstacles along the way towards ensuring that your business continues on when you are no longer around; this is why you should never do it by yourself. The help of an experienced attorney is not negotiable.
At Jurado & Associates, P.A., we handle this and many other matters related to what happens when you pass away. To get in touch with us, learn more about our probate services, and schedule an initial consultation, call us (305) 921-0976 or email Romy@juradolawfirm.com.