What Happens When A Business Owner Dies Unexpectedly?

As well as being an emotional time, the practicalities of what to do if a business owner dies can be confusing to deal with. In this article we explain what to do next, depending on what type of business structure they operated.

It’s also worth looking into Business Relief – it could help reduce Inheritance Tax relating to the business.

Do I need to tell HMRC or Companies House when a business owner dies?

You can use the Tell Us Once service to report a death to multiple government agencies in one go, although this doesn’t include Companies House, so you’ll need to do this separately for company directors).

You can still contact HMRC directly if you need help, and they will also let you know what to do about submitting a tax return for someone who has died.

The situation for sole traders

In the event of a sole trader passing away, the business essentially dies with them. Their business isn’t legally separate from them personally, so any assets the business owned (or liabilities) will automatically become part of their estate when they die.

Assets can be sold to clear any liabilities such debts or outstanding balances like loans, mortgages, employee wages, or unpaid invoices. Anything left will go to the beneficiaries of their estate.

Sudden deaths and partnerships

A business partnership will normally dissolve on the death of one of the partners, so what happens next depends on whether or not there’s an up-to-date partnership agreement in place:

• If there is, check if it addresses what happens to any assets or profits in the event of a partner’s death
• If there isn’t an agreement in place (or if there is, but it doesn’t mention this situation) their share of the partnership’s assets will become part of their estate. The remaining partner(s) can make an offer to buy their portion, but ultimately it’s up to the person (or people) who inherit to decide what happens to it.

What about limited companies?

A limited company is a separate legal entity in its own right, so the death of a director or shareholder can be a bit more complicated to sort out.

It’s well worth checking the most recent Articles of Association relating to the company. These are basically the written rules that a company uses to explain what powers directors have, and what the shareholders are entitled to, so there’s usually a section dealing with the death of anyone in the company.

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