As a business owner, you will have put your hearts and soul into its success and operations since its inception. In some ways, your business may be an essential part of your identity. However, the question that many entrepreneurs fail to address early on is: What happens to my business when I pass away?

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In this article, we will explore how you can ensure that your business is properly managed or transferred according to your wishes when you pass away. There are two primary areas for business owners to consider:

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​1) Personal Planning. Often business owners want to make sure that their families are well taken care of in their absence.  The starting point is to have your estate planning documents in order.  In particular, your Will ensures that you have selected an appropriate party to deal with your estate as your executor.  It can also help you to determine who the beneficiaries are and at what time and on what terms they will receive their inheritances.  Few business owners would wish for an 18-year-old to inherit a business and be expected to keep it operating.  Additionally, your Will can set out which assets you want to have transferred to the next generation and those that you want to see sold.

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​Although this article is focused on what happens to your business when you pass away, we would be negligent to not mention the importance of a Power of Attorney (POA) being in place.  A Power of Attorney allows you to decide who would make both personal financial and legal decisions on your behalf and deal with any interest that you have in a business. Without a POA, your loved ones and/or business partner(s) would be required to obtain a court order in order to act on your behalf if you were unable to act for yourself. 

 

​​2) Business Planning. ​​ A Unanimous Shareholders’ Agreement (USA) or a Partnership Agreement sets out the terms and conditions for a business to operate and plan if one or more owners were to pass away.  In particular, a well-thought-out agreement will include provisions as to whether the spouse or beneficiary of the deceased can or will take over operations of the business, or the terms and timeline in which the deceased’s interest will be paid out. 

 

There is immense benefit in the current owners of the business negotiating these terms directly with the other owners because they can come to an agreement on the valuation and timeline for payment.  The business owners can take into account payment timelines that are reasonable for the business to make payments and consider what their beneficiaries or families may require in the near future.

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In addition to a well-thought-out USA, business owners may also consider taking out life insurance policies on each other or through the business directly. This allows for a cash influx that would permit the business/other owners to buy out the deceased's share immediately without placing added financial strain on the business at a time when a key individual is no longer around .

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To ensure that your business is properly planned for after your death, it is essential to consult with legal and financial professionals who can help you develop a comprehensive estate plan.  By assembling a team that includes an accountant, financial planner, lawyer and others, you can ensure that proper planning is in place to protect both your family and your business .

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