When the owner of a business dies, administering the estate can be a complex affair.
A business forms part of a deceased’s estate and can be left under the terms of their Will. However, probate is far more difficult to administer when a business which is a going concern is left. In this event, the personal representative will almost certainly need specialist help to deal with the transfer of the business and any shares or alternatively with the winding-up.
Immediate decisions will need to be taken if the business is operational. The more planning the deceased has put into this, the easier it will be. There is a substantial risk to a business when its owner or part-owner dies that it will not be able to continue, or that its operation may be hampered in the short-term.
Preparing for this eventuality will mean that things can continue as smoothly as possible and the benefit of the business will be able to be passed on in the way the deceased would have wished.
Depending on the structure of the business, different actions may be needed.
If the business owner operated alone, the business simply becomes part of their estate and any debts will be paid out of the estate.
Ideally a partnership agreement will have been drawn up detailing how the death of a partner is to be dealt with. If this hasn’t been done, the effects can be catastrophic for both the business and any remaining partners.
Death will cause the dissolution of the partnership and the business would need to be wound up. This could take years and be complex to achieve. Any remaining partners would need to start a new business, alongside trying to finalise the old one.
Each partner would be liable for their share of any debts. If the business is in profit, the deceased partner’s share would become part of their estate.
Private or public limited company
If the deceased owned shares in a company, these would pass under the terms of the Will or in accordance with the rules of intestacy to the beneficiaries.
If a shareholders’ agreement exists, this may give the other shareholders a right to buy the shares at market value, with a given time period for them to raise the necessary funds.
Where the deceased was the sole director of a company, the personal representative will need to register the shares in the name of the beneficiary and also appoint a new director, and possibly a company secretary as well.
When someone actively involved in running their own business dies, it can be complicated for the executor or administrator to deal with. It is always a good idea to call in specialist help to deal with matters as quickly and efficiently as possible so that the business can continue.