What Happens to My Washington Small Business If I Die?
For many Spokane Valley residents, running their small business is an all-consuming affair. Their business is their life. But what happens to that business if the owner dies unexpectedly and leaves no clear succession plan in place? The answer to that question will depend on a number of factors, including how the business itself is legally structured.
Sole Proprietorships
Let’s consider the simplest form of small business: a sole proprietorship. A sole proprietor is an individual who owns and operates an unincorporated business. There is no legal distinction between the sole proprietor and the business. The proprietor reports any business income on their personal income tax returns. The proprietor is also personally liable for any business debts.
When a sole proprietor dies, the business effectively ceases to exist. The deceased proprietor’s probate estate is generally responsible for winding down the business, paying off any creditors, and distributing any remaining assets according to the terms of the proprietor’s will or, if there is no will, Washington intestacy law. In some cases, the proprietor’s will may leave instructions on what to do with any remaining business assets.
Corporations
At the other end of the spectrum is a corporation. A business corporation is a legal entity that is separate and distinct from its owners. Even if a corporation only has one shareholder, which is not uncommon for small businesses, the corporation does not cease to exist upon the shareholder’s death. Instead, the deceased shareholder’s stock passes according to their will or state intestacy law. The executor of the estate may also need to exercise some decision-making authority over the corporation until the estate is settled and the shares distributed to the new owners. The stock may also be sold to new owners as part of the probate administration.
Limited Liability Companies
Limited liability companies (LLCs) often present the most complex scenario when it comes to business succession. An LLC has owners known as “members.” Most LLCs have a written operating agreement, which is essentially a contract between the members on how they will run the business. This operating agreement usually contains provisions on how to handle the death of a member. A common method is what is called a “buy-sell agreement.” In simple terms, this is a clause whereby the surviving members agree to buy out the deceased member’s interest in the LLC from their estate or heirs. The buy-sell clause should include a method for establishing an agreed-upon value for the member’s share.
It is also important to note there are single-member LLCs. The death of a sole member can trigger a dissolution of the business. But even a single-member LLC can have an operating agreement that specifies how to continue or dispose of the business after the sole member’s death.
Speak with a Spokane Estate Planning Lawyer Today
Business succession is not something you can put off. If you own or operate any kind of business, it is important to consult with an experienced Spokane estate planning attorney who can explain your options. Contact Moulton Law Offices, P.S., today to schedule a consultation. We serve clients throughout Spokane, Kennewick, and Yakima.
