What Happens When the Owner of a Business Dies?
Written by Law on Call Staff | Reviewed by Nathan Askins | Last Updated August 8, 2025
All businesses need to be prepared for the death of their owner(s), with processes and procedures ideally outlined in company bylaws or operating agreements.
How to transfer business ownership in case of death varies depending on your company’s rulebook. However, the process is streamlined if you have a solid business agreement and all owners have a corresponding estate plan.
Main Takeaways
- It’s important to prepare a business for an owner’s death in the company’s business agreement.
- A business owner can bequeath business interests, shares, and other assets in their will, but more than likely they will not be able to leave the business itself to an heir.
- A solid succession plan is the best way to make the transfer of ownership as smooth as possible.
What to Do When a Business Owner Dies
The death of an owner can bring a business to a sudden halt, but it doesn’t have to. With the right preparations in place, many businesses can have an orderly transition following an owner’s death.
The company’s business agreements, like an LLC’s operating agreement, should outline what to do when a member dies. However, not all business owners think to include these provisions in their documents. Plus, there’s a chance the deceased left their shares or interests to a beneficiary in their estate plan. Factors such as these can complicate the transition from one business owner to the next.
In order to make the transition as smooth as possible, you will want to take immediate action after the death of a business owner, as well as prepare for some long-term procedures.
Immediate Actions
When a business owner dies, immediate action is essential in ensuring the business’s continued operation. This is where a good operating agreement or set of corporate bylaws comes into play. Hopefully these business agreements include approved procedures on how the business should be run moving forward. If not, you and others involved in the business will need to address some immediate points of concern.
Here are some short-term actions to consider:
- Secure access to financial information. This includes bank account details, usernames, and passwords. It’s also important to make sure you can access payroll information, as well as the deceased owner’s business email and any other business-related accounts.
- Tell your employees and clients. It is best to reach out directly to inform them of the owner’s death and the company’s next steps. Remember to be respectful of the owner’s grieving loved ones. Make sure you wait to make an announcement until the owner’s family is ready and has made arrangements.
- Appoint someone to manage the owner’s estate and business interests. The business owner may have appointed someone to manage their estate, or a successor may be listed in a succession plan or business agreements. If the owner failed to do this, you may want to hire a probate lawyer or an estate planning attorney to help you navigate the complicated aftermath.
- Review legal documents. Review the business’s operating agreement, bylaws, or partnership agreement for the specifics of what to do in the event of an owners death. Ideally, they’ll include agreed-upon directions for how to proceed. They may also include a succession plan, which will tell you how to replace prominent company figures and transition with minimal disruption.
Long-Term Actions
You will need to prepare some long-term actions to solidify the company’s transition. Some of these actions, like the probate process, can become particularly arduous and time consuming. Probate is a potentially lengthy legal process that manages or distributes a deceased persons assets. A good business agreement can go a long way when trying to move through these processes as quickly and smoothly as possible.
Here are some long-term actions to consider:
- Succession planning. You’ll want to check and see if the business owner created a succession plan, which may be included in an LLC’s operating agreement, corporation’s bylaws, or a partnership agreement. If the owner did create a succession plan, the business must follow that procedure. If they did not, you will need to transfer the deceased owner’s shares or ownership interests according the business agreement, their will, or a trust.
- The probate process. When a business owner dies, their ownership interests, shares, and other business-related assets may have to go through probate. During this process, the court will determine how much the business is worth and who will eventually be transferred ownership. If the owner had a will, the executor will follow its instruction. If the owner doesn’t have a will, their assets will be distributed according to state law.
- Buy-sell agreements. If the business has a buy-sell agreement already in place (usually included in the business agreement), then it will outline how the deceased owner’s shares can by sold to the remaining owners or the business itself.
- Business valuation. A valuation will be necessary to determine how much the business is worth before it can be bought or transferred. A qualified appraiser will need to complete the valuation in order to determine the fair market value of ownership interest.
Don’t leave anything up to chance.
Differences Between Business Entities
Different business structures have different ways of handling the death of an owner. More than likely, the business itself will have a set of processes and procedures already in place.
Sole Proprietorship
Unlike LLCs, corporations, or partnerships, a sole proprietorship ceases to exist when the business owner dies. All assets and debts become part of the owner’s personal estate and may be subject to probate depending on the estate plan.
However, it is possible to appoint a temporary operator who is responsible for liquidating assets to cover any debt that remains. After that, the remaining assets will distributed per the owner’s will.
LLC
An LLC continues to exist after an owner dies. Any ownership interests may enter into probate and transfer according to the deceased’s will or trust.
Business operations will need to follow the procedures as laid out in the LLC’s operating agreement. Whoever is representing the owner’s estate will need to follow the instructions in the operating agreement so that the transition of ownership is done correctly.
Corporation
A corporation still exists after the death of an owner. To avoid a pause in business activity, the business will continue to operate and the owner’s estate will become the business owner until a final transfer of ownership is complete.
Even though the deceased owner’s estate becomes the corporation’s owner, they are still required to follow company procedure until the final transfer of ownership is complete.
Partnership
If a formal partnership agreement has been written, the deceased partner’s shares and other business assets are left to the heirs in their will. More than likely, the recipients of these assets will not be involved in running the partnership itself, but may if a succession plan has been put in place.
If a formal partnership agreement was never made, the death of a partner will legally end the partnership, and the business will no longer exist.
The Importance of a Succession Plan
A succession plan is useful when an owner dies, but can also come into play when an owner retires or decides to leave the company. Developing a succession plan with clear procedures and expectations can help smooth out the transition between owners.
Generally speaking, a good plan will prioritize:
- Retaining good employees and rewarding talent. The last thing you want is your company to lose its best employees because the owner has died.
- Protecting member, shareholder, or partner interests. In a way, a succession plan acts as insurance for the other important players in your business. It insures that their business interests are kept safe.
- Creating a smooth transition. The death of an owner brings more than just changes in the business. It can be an emotional time for those involved, and a good succession plan can take some of the pressure off those who are left and trying to keep the business going.
Owner’s Will vs. Business Agreements
Unless a business is a sole proprietorship, it is not considered part of an estate. Shares and membership interests may be passed down, but the business itself cannot be left to an heir.
Generally speaking, an operating agreement or bylaws take precedence over a will. If a business owner’s will contradicts the business’s legal agreements, a resolution will be determined in probate. While you can use a will or trust to leave the business to someone, it will still go to probate where business agreements may override the estate.
How to Avoid Probate
In most cases, the owner’s personal assets will enter probate and be distributed per their will or trust’s requirements. However, when it comes to the business itself, there are a few steps you as a business owner can take to make the transfer of ownership is as smooth as possible.
- Buy-sell agreements. While drafting your LLC’s operating agreement or your corporation’s bylaws, it’s a good idea to include a buy-sell agreement. This will outline how membership interests are transferred if a death occurs and how other business owners can buy out the deceased owner’s stake.
- Will or estate planning documents. It’s important to make sure that the terms of your will abide by the company’s policies. This can help avoid a lengthy and expensive probate process.
- Trusts. A trust can be a useful way to manage business assets and assure they are distributed according the deceased’s wishes. If the terms of the trust are in line with the company’s policies, it may be possible to avoid probate.
Dissolving a Business After an Owner’s Death
Certain business entities can be dissolved upon an owner’s death if included in their estate plan. If you’re a sole proprietor, the business will no longer exist upon your death and those assets and debts will be allocated to your estate. If you own a Single-Member LLC, you can directly address the dissolution of the LLC and distribution of assets in your will.
However, if you own a multi-member LLC, corporation, or are a partner in a partnership you can’t leave the whole business to someone in your will. You can, however, leave your stock, LLC ownership interests, or partnership interests. Those assets will then go through probate.