When it’s time to start your estate planning process (that time is right now, by the way), you need to remember to take your small business into consideration. Whether you own the entire business outright and work for yourself or you simply own a portion of the entity, you will need to leave instructions, or a succession plan, for your family to follow.
By working with a business lawyer and/or estate planning attorney in advance, you can save your family, business partners, and even your customers from a lot of hassle down the road. What happens to the small business may depend on the form of ownership you have.
Sole Proprietorship: Generally speaking, if a sole proprietor dies, the business can come to a rather abrupt end. If there is someone you trust who is interested in taking it over when you are no longer able to run it yourself, it would be a good idea to stipulate that the assets of the business are inherited (or possibly purchased) by that individual.
Partnership: It’s likely that your partnership agreement has already laid out plans for what will happen when you or one of the other partners passes away. If not, then it makes sense to get together with the other partners to come up with a workable plan. It’s usually not too difficult for this type of business to continue after the death of one partner, although the surviving partners may have to buy out your interest with the money most likely going to your heirs.
Limited Liability Company: Unless you have stipulated otherwise in the operating agreement, an LLC will typically dissolve once one of the members dies.
Corporation: When one owner of a corporation passes away, it doesn’t usually have major legal implications for the corporation. Shares which the member held will usually be transferred to his or her heirs. They may also be purchased by the corporation. It’s not unusual for this topic to be addressed within a shareholder’s agreement.
Professionals: If you are a lawyer, doctor, dentist, pharmacist, or other licensed professional, planning for your business upon your death or incapacity is especially important. If a license is required for you to practice, only another licensed individual may wrap up or continue your practice. Including a “Practice Administrator” as part of your planning will enable your loved ones to easily take care of your business; without one they may be stuck with a stranger running your affairs.
Any good business planning lawyer will advise you on ways to help the business transition should you become incapacitated or deceased. A common approach is to set up a succession plan. There are many aspects to a succession plan, but some of the most important pieces include designating someone who will take over in your absence as well as training that person to be ready when the time comes.
A succession plan can seem a bit daunting, especially for the sole proprietor who hasn’t put much thought at all into if or how the business would survive without them. Exploring these topics with a business planning or estate planning lawyer will get you moving in the right direction, whatever your small business’ needs are.
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About Nicole K. White
After losing a close relative, Nicole witnessed the devastation, enormous expense and chaos caused by not having a simple estate plan. It is Nicole’s mission to educate parents, especially single parents, about protecting themselves, their families, minor children, and assets with comprehensive Estate Planning.