Whether or not the death or incapacity of a business owner will cause a business to dissolve depends on the form of business. A corporation ordinarily has no restrictions on the continuation of its existence, while a partnership is usually limited to a period measured by the lives of its members.

Sole Proprietorships

The sole proprietorship generally ends upon the death or incapacity of the sole proprietor and the business assets and liabilities become part of the sole proprietor's estate because the existence of the sole proprietorship depends upon the personal efforts of the sole proprietor. A personal representative may usually carry on the business for the limited period of time necessary to permit its winding up.

General Partnerships

In the case of a general partnership, the usual rule is that the death or withdrawal of one of the members dissolves the partnership, although an appropriate agreement in the partnership articles, a separate agreement or the decedent partner's will may provide for the continuation of the partnership business despite dissolution.

In general, smooth transitions can be accomplished by providing procedures in the partnership agreement that prevent dissolution due to the death or incapacity of a partner.

Limited Partnerships

Most state laws provide that a limited partner may assign his interest in the firm without effecting the dissolution of the partnership.

Limited Liability Companies

With respect to limited liability companies (LLCs), upon any member's death, the LLC is usually dissolved unless the remaining members agree to continue the entity.

Corporations

The articles of incorporation, which are the documents that created and govern the corporation, can provide for perpetual existence and, as a result, the corporation can continue without interruption upon the death or incapacity of its shareholders, officers or directors.

Plan Ahead

You may want to ensure that your business can continue if you become incapacitated or die. To do this, you will need to plan ahead so that your company doesn't loose money and so that someone has the authority to run your business and take care of necessary financial transactions. Without proper planning, your company could fall apart while your family is forced to figure out the legal situation.

Planning checklist:

  • Give someone you trust check signing authority on your bank and payroll accounts
  • Have a business credit card with a low credit limit to make it easy to handle day-to-day purchases
  • Give your e-mail, computer and bank account passwords to someone that you trust so that person knows how to access the information
  • Teach someone the basics of your business affairs, such as how to locate your tax records, find your accounts receivable and use your business software
  • Transfer your business assets into a revocable living trust, so that the person you choose as your trustee will be able to immediately start running your company if need be
  • Arrange for someone to make your financial decisions should you become incapacitated by having a general power of attorney, which will allow that person to operate your business