Future Planning: What Happens To My Business If I Die?

As a forward-thinking entrepreneur, it's only natural to start planning for the future of your business. To answer the question “What happens to my business when I die?", it is important to look at who inherits your business, how your clients and current contracts will be managed, and various ways to protect yourself and your business from such a situation.

This blog will provide insight into this topic that may be uncomfortable but is nonetheless essential for every single business owner. 

Who will inherit your business? 

Creating a will and designating a personal representative is essential in securing your business and the future of your family. A will makes all the difference when it comes to who inherits your estate and who serves as its representative. Drafting a will can help avoid potential conflict between family members and stress down the line. Proper preparation is key!

When a business owner passes away, someone must be appointed to carry out end-of-life decisions regarding the business. This person can either be appointed via a will or by a court. These duties may include finalizing contracts, hiring out additional help to wind up the business, closing accounts, paying debts, wrapping up operations, and distributing assets to the rightful heirs. Whoever is chosen as the personal representative (or sometimes referred to as an executor) will have access to any remaining resources and be responsible for ensuring that the business is wrapped up correctly. When you do not have a will, it can get messy quickly, as the court may appoint a personal representative of the estate for you. The court-appointed representative will then work with close living relatives of the deceased—like a spouse or children—on behalf of the estate to disperse assets and pay debts. To ensure your decisions are crystal clear and that everything runs smoothly after you’re gone, and that the personal representative is who you want it to be, it’s best to contact a local attorney who can draft appropriate paperwork for creating a will.

Whether or not you have a will, a few things will happen to your business depending on your business designation. As a sole proprietor, upon your death the state of your business and any associated debts or assets will become the responsibility of your personal representative to handle and distribute. Essentially, your business and your personal assets are one in the same. Your personal representative and heirs will then have the option to either cease business operations, sell the business, or create their own business based on the existing business platform.

For LLCs, an operating agreement outlining the succession of ownership is essential for when the business owner passes away. This ensures that their heirs (and potential co-members) are clearly informed about what will become of the company and its assets. In the event of a multi-member LLC, an operating agreement should explain what will occur to that individual's portion of the business, such as either enabling beneficiaries to step into their role or allowing existing members to purchase the share of the business from heirs. While certain distributions may be made depending on the case, most scenarios enable one or more persons to keep operating with the same LLC status.

What happens to current clients and contracts? 

In many cases, contracts tend to haunt the living after the death of a signatory. The default rule is that obligations in a contract will survive the deceased signatory. This means that the personal representative either named in a will or appointed by the court will need to handle and potentially fully execute all existing contracts.  There are exceptions to this default rule. If a contract cannot be executed by the personal representative, meaning the contract requires YOU and YOU alone to execute it, then the contract can be deemed void by a court. In many cases, a solo-service provider is the only person who can execute the contract, like a solo photographer, videographer, planner, or florist. In this case, the personal representative would notify the client and likely refund all fees paid minus the work already provided by the deceased. 

Additionally, when a business owner passes away, it's not uncommon to see the community gathering around them and their family. Clients often understand the severity of the situation and usually will be a bit more flexible on contract terms. We’ve seen other business owners move mountains and volunteer to take on the deceased’s clients to ensure that events can still happen as planned. More than likely take heart that your clients will not be left in the dust if the unspeakable happens to you. 

Helping your loved ones with your business

One of the many ways you can help your loved one prepare for this worst is by preparing a binder or designated spot for confidential information and passwords for your personal representative. This is an important step in ensuring your loved ones have access to necessary information in case of an emergency or your incapacity. Here are some steps you can take:

1. Choose a secure location: Find a safe and secure place for your binder or designated spot. This location should be known only to you and your personal representative.
2. Gather important documents: Collect and organize important documents, such as your will, power of attorney, insurance policies, and financial statements. Include any other relevant information such as your social security number, passport, and birth certificate.
3. Create a list of passwords: Create a list of all the important passwords to your online accounts such as social media, bank accounts, email accounts, and other online platforms. Make sure to update this list regularly and keep it in a secure location.
4. Make copies: Once you have organized all the necessary information, make copies of it and distribute them to your personal representative, your attorney, and any other trusted individual.
   
   
   

In addition to organizing your confidential information and passwords, it is also important to have a digital directive. A digital directive is a legal document that outlines how you want your digital assets to be handled after your death or incapacity. This includes your online accounts, digital photos, and any other digital assets that you may own. The Legal Paige has already created a digital directive template that can be tailored to your specific needs. With this template, you can ensure that your digital assets are handled according to your wishes and that your loved ones have access to the necessary information in case of an emergency.

Part of ensuring that your business is prepared for any possible scenario involves taking steps to get legally legit now. One way to do this is by having a service contract between you and your clients. 

If you're interested in learning more about which type of contract would work best for your specific situation, why not take this quiz? Your future self will thank you.

THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.

See our full disclaimer here.