The death of a business owner can cause many problems for employees, customers, suppliers, and other stakeholders.
Every business in the world has at least one thing in common: it needs someone in charge to succeed.
Sometimes, this looks like a sole proprietorship – a one-man show managing all aspects of the business. Other times, a company has a team of leaders at the top, mindfully deciding the following steps, which can affect thousands of people.
Keep reading this business blog to learn what happens after a business owner dies and how to make the right decisions regarding the business.
Authority To Act
If a business owner dies, there will likely be a lot of questions about who owns the company, who has the authority to act on behalf of the company, and whether the business should continue operating as usual.
Understanding the legal implications of a business owner’s passing is essential. For example, the tax implications of ownership change before making any decisions regarding the future of the business. This includes understanding how the death of an owner will affect the company’s ability to pay taxes.
Executor Of The Estate
A business owner’s death usually triggers events that must be dealt with quickly. This includes determining who will serve as the estate administrator, i.e., the person appointed by the court to handle the deceased’s affairs. Who will take control of the estate’s assets and manage the business during the administration period?
What Happens To The Business If No Plans Are Made
Maybe you trust that your partner will do the business justice, or you don’t see the reason for a succession plan for a sole proprietorship. Think of it like this: someone will have to pick up the pieces when you die, but everyone you know will be too focused on mourning to think straight.
Your partner will want to honor your last wishes, but they can’t do that if they don’t know your wishes. The same goes for a successor. You’re basically throwing your business away if you don’t plan to keep it alive after you pass.
At that point, anything can happen. Your family may decide to sell it all, or your partner may take your share without leaving a trust fund or financial security for your family. Your bank could even step in and claim assets or push for bankruptcy.
Put simply, it all goes up in the air without your say. It’s worth preserving the success you’ve created in life when you experience death, but you need to make the proper arrangements to ensure that happens.
Maybe you’re not the business owner, but you are the COO or CEO. Perhaps you only have a small share as one person of a group of partners. Whatever your position, if you’re a leader within the company, you must step up if an owner dies unexpectedly.
Decide If The Business Should Continue Operating
If you decide to continue operating the business, you must ensure you can do so without causing undue stress to yourself or others. It’s also important to consider whether you want to continue running the business because you love doing it or because you think it would benefit the community.
If you close the business, you must determine who should take over operations. The first step is determining if employees are willing to stay on board. If not, you’ll need to find new people to fill those positions.
Next, you’ll need to decide whether you want to sell the business outright or keep it under one of the following options: franchise, sell shares, or lease. Finally, you’ll need to devise a plan for closing the business.
Partners and Investors
Partners who have had an unexpected death (without succession planning) have a few choices. You can buy, take over, sell to heirs, or appoint heirs.
Buying and taking over means you purchase your partner’s share of the business and take over their responsibilities. You may decide to handle their previous role independently or appoint someone else.
Selling to heirs means setting a price with your deceased partner’s family. They would then have to pay you the money to maintain influence in the business. It’s a sticky situation for all parties involved, often causing more heartbreak than resolving the already tricky problem.
Appointing an heir means you invite the son or daughter of your partner to fill their role. There is no selling of shares or distributing funds, which usually keeps everyone happy. However, the heir has to be willing and able to take up their new job.
There is one more thing to consider. If your partner dies unexpectedly and you or the family think it was a wrongful death, you can seek compensation. You can read more here about such matters.
Take a second to consider the earlier situation about being a business owner and failing to make arrangements for an unexpected death.
Say the owner of your business dies and doesn’t leave behind any plans, then the family decides to sell the business. Whoever takes over can do whatever they want – including letting you go. So you can transition from having a great job to cleaning your desk before you even have a chance to wrap your mind around death.
As if losing a valuable leader in your life isn’t enough, experiencing this and losing your job is heartbreaking. If you have any management influence or top-level position, it’s worth bringing up the matter of succession planning to your company’s ownership.
How to Make Proper Arrangements
Let’s approach death from a personal perspective first. Say you own a business or a percentage of a business. You may have a successful company you fund and operate independently or a team of people you’ve partnered with.
Either way, it’s up to you to cover all your bases, including death planning. It may not be the most glamorous decision you have to make, but some argue it’s one of the most important.
The formal term for death planning as a business owner is succession planning. However, this is usually part of an Estate Plan and goes beyond getting life insurance and creating a personal Will or Trust. Success planning leaves your team with a course of action after you’re gone.
You have two choices to pick from at the start of your plan. You can either decide to sell the business and give employees/partners/family members a share, or you can name a successor.
The former takes the business out of your hands without making it a burden on someone else.
The latter allows someone to take up your legacy and continue moving the company forward with your vision. Successors are often C-level team members or family members ready to take responsibility.
You need to make it official whatever you decide to do. Don’t just tell your son he’s next in line as CEO or ask your current CEO to sell the business.
You must set your plans by writing them down and signing them on the dotted lines. Then, get with an attorney to ensure you’ve made the proper arrangements, and consult your board of advisors or business partner if you have such resources.
What happens when a business owner dies? This depends on whether there is a death plan or not. One of the most challenging positions running a business puts you in is moving forward after an owner’s death. It’s a grim thing to think about, but it has to be addressed to protect employees, shareholders, and more.
To ensure your company is in good hands if something ever happens to you, take the time to sit down with your partners and lawyers to work out a death plan.