What Happens to My Business if I Pass Away Without a Will?

Apr 18, 2024 | Business Law

As a business owner, you have a lot to plan for. Next quarter’s taxes. Your five-year expansion plan. How to improve the hiring process to onboard new employees efficiently. Where to buy pizza for your annual company shindig. 

But are you thinking even longer term than that? 

With everything you have to (literally and figuratively) account for as a business owner, making sure your estate plan accounts for what happens to your business can easily slip through the cracks. 

So what happens if you pass away unexpectedly and without a will?

Let’s examine why planning for your business’s future is crucial and how you can secure its continuity.

Caution: These are some illustrative scenarios that may occur. The results can vary based on the laws of your jurisdiction and your entity type. 

Passing away without a will for different business types

If you pass away without any plans or governing paperwork lined up, intestacy laws and your business structure dictate who’ll inherit your business. A great deal of nuance is involved, but the general concepts at work are below. 

Sole proprietorship 

If you pass away without a will as a sole proprietor, or single member llc, taxed as a Sole Proprietor, your heirs may inherit the business directly in undivided interests.  If there is a requirement that an owner holds a certain license, a temporary operator or receiver is typically appointed, the business is usually dissolved, and its assets are liquidated to cover any outstanding debts. What remains is distributed according to state probate laws. 

Sometimes the business can continue, however the  situation often means that the business can’t generate any further income. And if the debts are substantial, there might be little to nothing left for your next of kin.

Is there someone in your family that knows how to operate your business?  That knows how your systems work?  Is there an unrelated party? These are key things to think about and address in your estate planning. 

Since personal and business fortunes are so intertwined in a sole proprietorship, working with an estate planning attorney is essential to craft a will that protects your legacy and loved ones.

Single-member limited liability company (LLC)

What happens to a single-member LLC depends on several factors. 

If an operating agreement appoints a successor, the business could continue to operate or be dissolved. If there isn’t an operating agreement, however, the following steps depend on the executor or court-appointed administrator of the estate. They could choose to: 

  • Find a new member to continue the business
  • Join the LLC themselves
  • Follow another course of action

However, your interests in the LLC would pass to your heirs, though they wouldn’t automatically inherit the right to manage the LLC. Heirs have a window—typically 90 days—to seek probate court approval to continue the business. If they miss the window, the LLC gets wound up, and its assets go through probate.

Multi-Member LLC (Taxed as a Partnership)

Since a multi-member LLC has other members who can keep operations running, it doesn’t necessarily dissolve if you pass away. However, you must include provisions for what happens when a member passes away as part of your operating agreement and craft a business succession plan.

Without such provisions or a will, intestacy laws direct your business interest to your closest family members: your spouse or children. They may be considered an assignee or a member. These heirs have a year to settle any inheritance tax dues and can choose to sell their shares, potentially even outside the partnership.

That’s why it’s so important to work with a skilled business attorney to craft an operating agreement and business succession plan that work in harmony, along with an estate planning attorney to draft a will that reflects your wishes for your business and its future. 

S and C corporations

Since both S and C corporations can have multiple managers, members, directors and shareholders, the business doesn’t typically automatically dissolve upon your death. In most cases, your remaining assets will be distributed according to state law. Sometimes the interests are transferred. Sometimes the heirs become assignees. 

However, if you’re a sole shareholder and pass away without a will, your estate becomes a temporary owner until the stocks are distributed and the business closes. There will also be a waiting period as the court appoints an executor to: 

  • Handle the probate process
  • Determine rightful beneficiaries
  • Distribute your shares as per intestacy laws

Why create a will for your business?

While we typically think of wills for our homes and personal assets, it’s also equally important to have a will to protect your business because it allows you to:

  • Choose your desired beneficiaries
  • Provide clear instructions on what happens to your business after you pass away
  • Make ownership transfers smoother
  • Protect your business and beneficiaries’ interests
  • Complete tax planning to minimize estate taxes
  • Reduce the likelihood of disruptive family disputes and legal challenges

Yes, a will has to go through the probate process. But it’s a strategic approach that protects your assets and thus maintains your business stability and legacy for generations to come.

How experienced attorneys can help

Navigating the complexities of making a will yourself while also managing your business’s future after you pass away isn’t straightforward. Moreover, you can easily make (avoidable) missteps and errors without professional insight and guidance. Experienced attorneys can help you navigate the process with peace of mind and protect your business according to your wishes.

For example, a business planning attorney has a deep knowledge of business law. They can help you strategize the best ways to transfer ownership, minimize taxes, and ensure your business continues to operate after your passing (if that’s what you wish).

Conversely, an estate planning attorney focuses on the bigger picture of your personal and business assets so the transition to your beneficiaries is seamless and virtually stress-free. They help create comprehensive estate plans that cover asset distribution and business continuation. They can also offer strategies to protect your business and heirs from extensive tax liabilities and legal hurdles.

Together, these professionals work closely with you to craft a future for your business that aligns with your vision and values before and after your passing.

Protect your business with seasoned Texas business and estate planning attorneys

At Shann M. Chaudhry Esq., Attorney at Law PLLC, our team of experienced business attorneys and estate planning attorneys specializes in business formation, management, and estate planning in Texas. We’re dedicated to supporting your legacy and providing for your loved ones.

Ready to take control of your business’s future? Contact us today to schedule your consultation and see how we can help you protect what matters most.

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