If you are self-employed and own your own business, it is likely that you want to ensure your successful business can live on and function long after you have passed. To do so though, you must address your estate plan. Planning for how your business will operate once you have passed on is a good step in the right direction of preserving your legacy and hard work.
There are many considerations and responsibilities a small business owner has. This includes proactive planning for what will happen to your business after your death. For business owners in the greater Los Agneelse area, the Los Angeles business attorneys at Leiva Law can help with all business-related matters and needs.
The Structure of Your Business Will Determine How to Adjust Your Estate Plan
Your estate plan must have specific provisions regarding the functioning of your business. This is specifically true when you have partners, employees, or members of your family that are associated with your business. What options are available to you regarding the running of your business after you die will be dependant on what type of structure you have.
- Sole proprietors are individuals who do not incorporate their business, file a Schedule C federal tax return, and also run their business without any other partners. Forming a sole proprietorship is extremely common because of the flexibility that this legal structure offers and the fact that it is relatively easy to set up. Because sole proprietorships are linked directly to the individual person that forms them, after death, the businesses essentially also expire. It is possible to have a personal representative to:
- Run the business for six months in lieu of a court order.
- Petition the court to end the business.
- Sell any business assets and then distribute the returns.
- Partnerships are unincorporated formations with more than one owner. Often, because there is more than one party in a position of responsibility in a partnership, written agreements are usually done. If such an agreement exists, it can include what to do should one partner die. If there is not an agreement, the personal representative of the deceased may be appointed by the court to replace the deceased partner in the business.
- Limited Liability Companies are their own functioning entity distinctly separate from the people who form them. It is recommended for LLCs to have a written agreement in place, but it is not required. In this agreement, how the business is run when one party dies can be included. Without an agreement, the personal representative of the deceased’s estate can take what actions are necessary with respect to the business to close the estate. When only one person forms an LLC, they can indicate what should happen to their business in their will or their trust.
- Corporations that have shareholders will have the shares in the business be included in the deceased person’s estate plan. Then, the business will just continue to function.