18 October 2013 0 Comments

What Happens To Your Business After You Are Gone?

putting the book awayIf you have your own business it’s important that you ask yourself the question, “What happens to it when I die?”

Forget about Life Insurance for now.  Think about your answer to that question.  If you don’t have a plan, all the years of building your business could be for naught.  Without a plan, here’s what those who are left behind must face:

  • If your business is a partnership, at the death of any partner that partnership is dissolved unless an agreement has been made to buy out the interest of the deceased partner.  Surviving family member could force liquidation.
  • If your business is a corporation or LLC there is no dissolution of the business, but the family/beneficiaries of the deceased shareholder can make it very difficult for the surviving shareholders.  They may want to come to work and expect the same remuneration that their dearly departed was getting.  Or they want to be bought out at a highly inflated price.  It’s seldom fun being in business with your dead partner’s wife or husband or Uncle Louie.
  • If you’re a sole proprietor, unless there’s a good fairy standing in the wings, that business just went up in smoke at the death of the owner/operator.  Liquidation prices are all that you can get at a fire sale.

So, here’s what you’d better do before the grim reaper is at the door.  If you have partners or co-shareholders enter into an agreement stating to whom your interest is to be sold at your death.  It is likely to be to your surviving partner(s), but it might also be to your son or daughter.  In any event, decide now who is to buy your interest and what the price will be.  If that price is a stipulated dollar amount then there should be an appendix to the agreement that requires an annual reassessment of the price and/or a formulae to be used to determine the price.  The heirs of the deceased must agree ahead of time and the surviving partners must agree to buy.  Obviously, all partners should enter into the agreement.

If you are a sole proprietor (incorporated or not) do you have a valuable employee who might be capable of running the business when you die and would they be interested in so doing?  Enter into an agreement with them to purchase your business.

All of this makes a lot of sense, but there is one important missing ingredient.  Where’s the money come from to pay for the deceased partner’s/proprietor’s interest?  Life Insurance to the rescue!!

And that’s where we go next.

Leave a Reply