Yes, the type of business structure plays a crucial role in what happens to a business after the death of the owner. Typically, businesses with formal setups have clearer rules about changes in ownership. However, if there is no clear plan in place, families may face extra challenges during estate administration.
Sole proprietorships
A sole proprietorship is the simplest business type, but it can create the most immediate concerns after death. Since there’s no separation between personal and business assets, everything flows through the estate.
Several tasks may need immediate attention during administration, including:
- Deciding whether to continue or close the business
- Managing employee payroll and vendor payments
- Protecting business accounts
- Maintaining important customer relationships
Quick action helps preserve the business value of the estate. If you are handling a loved one’s business after their death, an attorney can help you sort through your options and duties regarding the business.
Partnerships
When a partner dies, the first step is to review the partnership agreement, which should explain what happens to their share of the business. During this time, you’ll need to work with the surviving partners to either:
- Transfer the deceased’s share to heirs
- Sell the share back to other partners
- Wrap up business affairs if needed
Some partnerships may end after death if there’s no plan in place. However, limited partnerships often stay open because some partners only own shares and don’t run daily operations. The key is finding out what rights the estate has under the partnership agreement.
Corporations and limited liability companies (LLCs)
In corporations, a deceased shareholder’s stock becomes part of their estate. The business keeps running while shares transfer through the estate process. However, take note that many corporations have agreements that give other shareholders first rights to buy the deceased’s shares.
For LLCs, an operating agreement controls what happens when an owner dies. This agreement might have certain rules about:
- Who can inherit membership interests
- Whether other members must approve new owners
- How to value the deceased’s share
If there’s no clear agreement, both corporations and LLCs follow specific rules under Pennsylvania business laws. An attorney can help you understand which rules apply to your situation.
Every business succession process is different
Your circumstances will have unique aspects based on family needs and business operations. An attorney can review your specific situation and explain your options under the law.
