What Happens to Your Business When You Die? Protecting Business Legacy
- William Richter | Attorney
- 29 minutes ago
- 3 min read
Starting and managing a business involves countless decisions – how much capital to invest, the type of entity to form, the number of employees to hire, and the products or services to offer, to name a few. Given these considerations, every business should have governing documents that include a clause addressing what happens if an owner or member dies.
While it’s easy to push ‘What happens to my business when I die?’ down the priority list, overshadowed by more immediate concerns, it is an inevitable reality that business owners may face. Every business owner should be planning in the present to protect their business legacy, and what happens to the business should the worst happen. In the article, we explore key factors to consider and why they matter for the future of your business.
How Does Your Business Entity Type Affect the Outcome?
The structure of your business – whether it is a Limited Liability Company (LLC), Corporation, Sole Proprietorship, or Partnership – carries significant implications for what happens after your death. For instance, in a Sole Proprietorship, where you are the sole owner, the business typically dissolves upon your death. The business assets and liabilities then become part of your estate. Is this the outcome you desire? Or would you prefer your business to persist under the control of a spouse, child, or another designated individual?
For companies with multiple owners, additional questions arise. Should your ownership share be sold to your partners? Would you want a family member or friend to step into your role? Or should your share automatically transfer to the remaining partners? You can proactively address these critical choices by structuring your business and its governing documents to reflect your wishes.
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What Do Your Governing Documents Say?
Most businesses operate under an operating agreement (for LLCs) or a shareholders’ agreement (for corporations). These documents often include a termination clause outlining what happens upon an owner’s death. However, such provisions are frequently overlooked and left unchanged, especially in the early stages of a business when the focus is on growth rather than an end.
Reviewing these clauses carefully and ensuring they align with your intentions is essential. Death may not be a pleasant topic, but clarity in these documents can prevent confusion and disputes later.
Does Your Estate Plan Align with Your Business Goals?
Everyone should have an estate plan to dictate how their assets are distributed after death. However, even if your estate plan designates your business assets to pass to your spouse or children, your governing documents might contradict this intent. Sometimes, your business may not even be considered part of your estate. To avoid conflicts, your estate planning documents and business agreements must work harmoniously, reflecting your overarching goals.
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Families often face turmoil over estate disputes, and businesses built with significant time, money, and effort are left vulnerable to mismanagement after an owner’s death. Thoughtful planning and attention to these matters protect your legacy and the business you worked hard to establish. By addressing these considerations now, you can ensure your business is handled according to your wishes when the time comes.
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Conclusion
Planning for your business’s fate after your death is a legal necessity, and it begins with your business documents. You safeguard your life's work from uncertainty or conflict by aligning your entity structure, governing documents, and estate plan. Don’t overlook the importance of your business's termination clause. Your business deserves to thrive or transition smoothly, reflecting the dedication you have invested in it.
Dye Culik is a corporate law firm located in Charlotte, North Carolina, and Huntersville, North Carolina. Our attorneys help businesses and business owners in NC, SC, MA, and MI and can collaborate with your estate planning attorney to grow and protect your business legacy. Contact us and mention this article for a complimentary consultation with Attorney William Richter.