The untimely death of an entrepreneur is just one of the things you don’t want to bring up, right? So, in this blog post, we will ask you the question and do our best to give you some information. It might be a bit of a morbid subject to touch on, but unfortunately, it is one that needs to be addressed.
The Situation of the Sole Trader
In the event of the death of a sole proprietorship, the business essentially goes out with him. Since their business and personal finances are one, all of their assets will become their property after they die. It is governed by the will or inheritance of the entrepreneur.
Assets are sold to pay off debts or unpaid balances, and whatever remains thereafter is left to the family of the deceased to settle. This includes things like debts and loans, mortgages, salaries, and unpaid bills.
Sudden Deaths and Partnerships
After the death of a co-owner, the company is of course dissolved. The share belonging to the deceased can then be acquired by the remaining shareholder. If this is not financially viable for them, then that part of the business can potentially be bought by someone else.
Many gray areas can appear in this situation. We always recommend that all articles of association concluded during the creation or management of the company include the subject of the death.
The co-ownership of a company can either be transferred to a successor during the lifetime and mental state of the owner or by means of a power of attorney. Of course, this should only be done when you are confident and ready.
What about Public Enterprises?
In limited liability companies, the business and the owner’s personal finances are two separate entities. This means that in the event of death, the company itself assumes all debts or obligations, and not the deceased entrepreneur.
The shares can then be sold or transferred to the family of the deceased with limited liability.
So how can you make sure you’re ready … just in case?
- Get your succession plan in order: Establish an action plan, if necessary.
- Invest in good life insurance – it will be a huge financial relief for the bereaved.
- Create clear contracts while you live and be healthy – set records while you can.
Consequences
Many problems can arise when property rights are transferred due to death or divorce. One problem is that the remaining owners are now doing business with people they don’t know or with people they don’t want to do business with. They can be the ex-spouse of a former owner or a stranger who has inherited stocks and has little or no knowledge of the business.
Another is how the value of the deceased owner’s stake in the business is determined. There are many ways to calculate a company’s worth, and the results can vary widely depending on the method used. Parties receiving interest on the property, such as ex-spouses or estate agents, are likely to choose a method that offers the highest value if the remaining owners wish to purchase the transferred shares. The remaining owners generally advocate a lower value to allow for interest repayment. Valuation disputes can be costly, lengthy, and stressful for everyone involved.