What happens to a business when the owner dies?

It’s something many business owners prefer not to think about—but it’s an important question. What would happen to your business, and to the value you’ve built in it, if something unexpected happened?

Most people haven’t planned for this situation. And although it may feel uncomfortable to think about, planning is one of the most caring actions you can take. Your business isn’t just yours—it often supports loved ones, co-owners, employees, and their families.

What happens next largely depends on your business structure. Here’s how the law treats each one—and why a little preparation can make a big difference.

Sole Traders

If you’re a sole trader, legally, you and your business are one and the same, which means the business ends with you.

Your business and personal assets form part of your estate and will be passed on according to your Will. If you don’t have a Will, intestacy rules apply. Often, assets may need to be sold to cover things like unpaid invoices, loans, or employee wages. If the business cannot cover these costs, the remainder of your estate may need to step in.

Without a clear plan, grieving loved ones may face avoidable financial and administrative burdens—something no one wants for their family.

Partnerships

A surprising number of partnerships either lack a formal partnership agreement or have one that doesn’t address what happens if a partner dies. In those cases, the law automatically dissolves the partnership.

This can leave surviving partners uncertain about their next steps, and the family of the deceased partner unsure of their rights or financial position.

A well-prepared partnership agreement can provide invaluable clarity by outlining:

• Buy-out options so surviving partners can keep running the business.
• Who assumes decision-making, aiding the business in maintaining smooth operations.
• Balancing the needs of the business with the interests of the deceased partner’s family.

Without this clarity, the partnership’s future could become complicated very quickly.

“My partner and I cannot praise Jenny enough. What we thought might be a daunting procedure was professionally executed by her without issue.”

Limited Companies

A limited company functions as a separate legal entity, meaning the company—not the deceased owner—is responsible for its debts (unless personal guarantees were given).

The owner’s shares pass according to their Will—or under intestacy rules if no Will exists. Sometimes, this leads to shares transferring to family members who may not want to be involved in the company or who may prefer to sell them immediately.

A shareholder agreement can help avoid confusion or disputes by setting out:

• Who can inherit or buy shares.
• Whether shares must first be offered to remaining shareholders.
• How the shares should be valued.

This kind of agreement can make a difficult time much smoother for everyone involved.

Planning for the worst – so the business can continue doing its best

Succession planning is ultimately about stability—for your business, your partners, and those who depend on you. The most vital component is clarity.

Take time to review your Will, partnership agreement, shareholder agreement, and any cross-option arrangements to ensure they accurately reflect your current wishes and the realities of your business.

Life insurance can also be extremely beneficial. Specialist cover can provide partners or shareholders with the funds they need to buy out your share, while personal life insurance offers financial support to your family when they need it most.

Considering these matters in advance might appear challenging, but it demonstrates care. With the right plans in place, you provide your business—and those who matter to you—the best chance to endure and thrive, whatever the future brings.

To discuss these matters further, call our Lifetime Planning and Wills Team on 01225 755656 or complete the Contact Form.