When a business owner dies, many questions arise and the owner’s death is often followed by some level of panic as those left in charge try to determine the answers.
Here are answers to some common questions, as well as options for consideration as you turn the page on the next chapter of the business.
What Happens to the Shares of the Business after an Unexpected Passing?
Shares can be passed in two ways when the owner of that property passes away.
The shares can pass to a joint owner through a beneficiary designation (transfer on death) or through the probate process, which means they would be governed by the will of the deceased owner.
Since most business owners do not have shares that are jointly owned, nor do they designate a beneficiary for those shares, the new owners of those shares are usually the spouse or the children of the deceased owner, which naturally leads to the following question.
Keep Everyone Prepared by Planning Ahead
Explore whether all owners want to be in business with each other. If there aren’t new owners, determine if the spouse and/or children are capable of running the business.
Ease the pain by planning ahead and creating a properly structured and funded buy-sell agreement.
Buy-sell agreements are legally binding documents between two or more business owners that govern how business interests are treated if one owner leaves unexpectedly. Events that generally trigger a buy-sell agreement include termination or resignation, retirement, divorce, bankruptcy, disability, or death.
Death and disability often are not preceded by any warning. Your buy-sell agreement should include the following to address the issue of not having joint ownership or a beneficiary designation. In this situation, the shares of the company transfer to the surviving spouse.
- Establish who has the rights and/or purchase obligations of the shares in question and identify the names of the purchasers.
- Set a price or a valuation methodology for those shares in question.
- Establish terms of the purchase.
- Spell out consequences for not exercising the purchase rights.
A buy-sell agreement can help ensure the continuity of a business by keeping the ownership of the business with the other owners while simultaneously giving value for the deceased owner’s shares to his or her family, which is what most interested parties desire.
Oswald’s experienced team can help you build a solid succession plan for your company.
For more information, visit our Life Insurance page or contact us here.
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