The untimely death of a business owner is just one of those subjects you don’t want to broach really isn’t it? That’s why, in this blog post, we’re asking the question for you and then doing our best to provide some informative advice. It might be a bit of a morbid topic to touch upon but unfortunately, it’s one that needs covering.
The situation for sole traders
In the circumstance of a sole trader passing away, the business essentially dies with them. As their business and personal finances are one, anything they owned falls into their Estate when they die. It will be dealt with via the business owner’s Will or inheritance.
Assets will be sold to clear any debts or outstanding balances, and anything left after that will be left to the deceased’s family to settle. This covers things like debts and loans, mortgages, employee wages, and unsettled invoices.
Sudden deaths and partnerships
Following the death of somebody in joint business ownership, the partnership will naturally dissolve. The portion of the business belonging to the deceased can then be bought by the remaining partner. If this isn’t financially viable for them, the portion of the business can potentially be bought by somebody else.
There are lots of grey areas that might arise in this situation. We always recommend addressing what will happen in the event of a death in any partnership contracts you draw up when starting or running the business.
Part-ownership in a business can be gifted to a successor either while the owner is still alive and deemed mentally fit, or through power of attorney. Of course, this should only be done when you are sure and ready.
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What about limited companies?
With limited companies, the owner’s business and personal finances are two separate entities. This means that the company itself takes on any debts or liability in the event of a death – not the deceased business owner.
Shares can then be sold or transferred with limited liability attached to the family of the deceased.
So, how can you make sure you’re prepared… just in case?
Get your succession plan sorted – have a plan of action in place for if it should be required.
Invest in a good life insurance plan – this will be a massive financial relief for those left behind.
Set out clear contracts while you’re alive and well – set the records straight while you can.
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About The Author
A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.