A considerable percentage of the adult population in California and across the United States are small business owners. You may be part of that group of Americans. If that is the case, you likely have questions about what happens to your business after you die. In fact, there are a number of considerations to bear in mind when it comes to issue of what happens to your business after you pass away.
Business Organizational Documents Determine What Happens to Your Business
When ascertaining what will happen to your business after you pass on, the organizational and other foundational documents associated with the enterprise itself may answer the question. This particularly is the case when a business has more than one owner. Thus, as part of an overall estate planning process that involves a small business, an understanding of what is included in these documents is vital.
A common small business structure in this day and is what legally is known as a limited liability company, or LLC. If you are the only member of an LLC, your estate is very well may be the mechanism for dealing with what happens to your business after you die. If the LLC associated with your business has more than one owner, the articles of organization for the entity are likely to set forth what happens when an owner passes away. As a point of information, the owner of an LLC technically is called a “member.”
Other types of business organizational structures commonly utilized for smaller enterprises in the United States are partnerships and subchapter S (or closely held) corporations. The primary reason why the organizational documents likely address what happens to your business (or your interest in a business) when there are multiple owners is because the surviving owners want to maintain control over who becomes an owner of the venture. In other words, at the time a business with multiple owners if formed, the owners want to be able to ensure that an unwanted party doesn’t become a person with an ownership interest in the venture on the death of an initial owner. Thus, the organizational documents likely dictate what happens when an owner dies.
The most common scheme used when one of the owners of a small business dies is a mechanism that permits the heir or heirs of that enterprise to receive financial compensation for the deceased owner’s interest in the business. Simply put, the surviving owners are permitted the ability to “buy out” the heir or heirs of an owner of the business who passes on. This power to buy out an heir (or heirs) typically is delineated in the articles of organization (LLC), articles of incorporation (subchapter S corporation), or partnership agreement (partnership).
The foundational documents typically include a mechanism by which the heirs of a deceased owner can be bought out. Typically, there is a set time period within which this must occur. If the buyout isn’t accomplished by that deadline, an heir or heirs ended up with a vested ownership interest in the business enterprise.
If you are the sole owner of your business, you don’t face the issues that have been just discussed. Although you can set forth what happens to a business your solely own in articles of organization or articles of incorporation, you can deal with who gains ownership of your venture through the estate planning process as well.
Will or Trust Govern Disposition of Your Business
If the ownership disposition of your business is going to be determined through the estate planning process, you likely will arrange for ownership of your business to be conveyed another person or persons upon your death through a last will and testament or a trust.
Because of tax considerations and other issues, the most common approach is for ownership of a business to be conveyed via a trust. The reality is that in many, if not a majority, of situations, another family member or members are designated to become owners of a business in this type of situation. The assume ownership an ownership interest in a small business as beneficiaries of a trust created by the original owner of the venture.
Consult With Legal Counsel to Make Sure All Bases Are Covered
The reality is that conveying ownership of a small business following your death can prove to be a challenging process. Thus, you are wise to avoid crafting a structure through which a conveyance of ownership is to occur without professional assistance. There are estate planning attorneys that have backgrounds in assisting small business owners of different types in getting their ultimate financial affairs in order.
The first step in hiring an estate planning attorney to assist you, including with addressing estate issues surrounding your business, is to schedule an initial consultation with legal counsel. As a matter of routine, an estate planning attorney doesn’t charge a fee for an initial consultation.