What happens to a company upon death when the owner or one of the owners dies?
There are many questions that arise when the owner of a business suddenly dies. The answer to this question depends on the type of business. In this article, I will describe a number of the most common questions.
A sole proprietorship ends when the owner dies. As the name suggests, there can only be one owner. And without the owner, there is no business. However, the assets of the business itself can be sold by the estate to either an heir or a third party, who can continue the business.
The biggest disadvantage is that the company's bank accounts, CVR number, etc. are all closed immediately upon death. This means that for a period of time it will not be possible to pay salaries to employees or pay bills. Both are major disadvantages for a company with a potential risk of having to close.
The business cannot continue to operate until you have a probate certificate from the Probate Court. That takes time. And it does not solve the question of who will then run the business, at least temporarily.
A partnership is characterized by the fact that there are several owners who own the business together personally. A death usually has a decisive impact on both the ownership and the operation of the business. And in its current form, such a business cannot continue in its current form upon death.
The heirs do not have the right to take over the ownership share, but this can of course happen if the other stakeholders accept it. However, the heirs do have the right to have the value of the deceased's ownership share paid into the estate by those who may take over the ownership share. If no one wants to take over the ownership share, the partnership must be dissolved.
A limited liability company or limited liability company is not affected by the death of an owner. At least not as a starting point. Unlike a sole proprietorship, the companies simply continue to exist. However, if the sole proprietor and director have died, the death will also cause problems for the heirs with future operations, as there is no longer a director who can pay bills and salaries. Here too, a probate certificate is necessary before the company can be continued or sold.
The heirs can choose whether to keep the shares or to sell them. It is also possible that one heir would like to take over the shares as part of his inheritance, while the other heirs have no interest in them.
If the deceased was a co-owner with other owners, the question arises as to who has the right to take over the deceased's ownership share. The starting point is that the heirs have the right to take over the shares or units. However, the owners may have made an ownership agreement in which they give the other owners a right of first refusal in the event of death. If this is the case, the estate is obliged to sell the units for payment.
Valuation of a business upon death is a very difficult and uncertain matter. As an executor, the lawyer will always ally himself with the company's accountant to obtain updated accounting figures. However, this is only a guideline, as many, especially smaller, businesses are built around the person who has just died, which is why the value is quite seriously affected by the death.
If the company, shares or interests can be sold to a third party, the value is the one that can be negotiated. Similarly, if an ownership agreement has been drawn up, it stipulates precisely how the value is to be calculated.
It gets even worse if an heir or sole heir is to take over the business. Here, there is the greatest risk that the value will be set lower than it actually is, so that the heir can save as much inheritance tax as possible. Conversely, the estate may have to act quickly to keep the business running. A business that is idle loses value daily, and a slow decision can mean that the business is suddenly worth nothing to the estate. The most practical solution is to set a price that both parties expect to correspond to the market value, but with the proviso that if SKAT rejects the valuation, the buyer can choose between either paying an additional amount or undoing the purchase of the business.
Death can occur suddenly and unexpectedly, but as the owner or co-owner of a business, you can still do your part to ensure a smooth transition of ownership in the event of your death.
No ownership lasts forever, and most people plan to retire at some point. To ensure a smooth transition of ownership and management of the business, you should prepare early to bring the next generation into the position. This is regardless of whether the next generation is your children or grandchildren, or whether it is one or more key employees. With a generational change, you can control the process of who will enter the management and how much influence each of them will have.
Should you subsequently die, the future of the company has already been decided.
An owners agreement regulates a number of important matters between you and your partners in the company. Among these, it is customary to decide what should happen to your ownership share in the event of your death. Depending on the type of company, it will usually either state that
a) the other owners have a right of first refusal to purchase your ownership share on specified terms, and your heirs do not have the right to take over ownership, or
b) your heirs have the right to continue ownership of the company, possibly with the restriction that they do not have voting rights.
An ownership agreement that takes death into account puts your partners in the business in a favorable position to continue running the business. At the same time, your heirs will have the right to have the value of your ownership interest paid into the estate and distributed among the heirs.
If you are a sole proprietor or your heirs have the right to take over your ownership shares, it is useful to decide in a will who will inherit your business upon your death. It is likely that one or two of your heirs have the best qualifications for, or even want to, continue running the business. It may also be that you have a key employee who should have a share in the business.
Regardless of how long you have been married and how happy you and your spouse are with each other, a prenuptial agreement can make sense when a business is involved. For example, the business can be made the owner's complete separate property and passed directly to the successors, while the surviving spouse can continue to sit in the undivided estate with the rest of your assets.
About a marriage contract is the right solution depends a lot on the specific situation.
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