Most people only think about estate planning in terms of their personal assets, but what if you own or co-own a business? How does death affect the business? More importantly, what kind of business succession planning do you have in place to deal with your sudden or unexpected death?
Perhaps not surprisingly, most Wisconsin business owners have not done any succession planning. Some people assume the business simply dies with them. Depending on how you structured your business, however, that is not necessarily true. Even if the business is simply you, and you never created any separate legal entity, there will inevitably be certain matters that need to be wound down upon your death.
Business Structure Matters
Here is a brief rundown of the common business structures used in Wisconsin and how the death of an owner or co-owner is addressed:
Sole proprietorship: A sole proprietorship has no separate legal existence from its owner, even if the individual conducts business under a separate trade name. Absent any succession planning on the part of the proprietor, any remaining business assets will pass according to Wisconsin probate law. The proprietor’s estate will be responsible for paying any outstanding business debts from the decedent’s assets, which in some cases may leave little or nothing for the heirs and beneficiaries.
- General partnership: When two or more people go into business together without forming a separate corporate entity, they have what is legally known as a general partnership. The death of any single partner automatically dissolves the partnership. Ideally, the partners will have a written agreement in place detailing how to deal with a death of a partner and the winding up of the partnership’s business.
- Limited partnerships (LP) and limited liability partnerships (LLPs): These are partnerships with a formal legal agreement in place. Typically one person or entity serves as the “general partner” in charge of the business, while the “limited partners” are simply investors who do not directly participate in day-to-day management. The partnership agreement should specify how to handle a deceased limited partner’s share.
- Limited liability company (LLC): One or more people may create an LLC, which provides protection against personal liability for business debts. In other respects, an LLC operates much like a partnership. An LLC should always have a written operating agreement in place, which should include provisions on how to handle an individual member (co-owner’s) death. For instance, the operating agreement may state that the surviving members should purchase the deceased member’s interest from his or her estate for a previously agreed-upon price. The LLC’s business itself may continue uninterrupted following a member’s death.
- Corporation: A corporation is a completely separate entity from its individual owners or shareholders. Even if one person owns all of a corporation’s stock, his or her death has no legal effect on the corporation’s existence, business, or obligations. The shares of the company simply pass under the terms of the shareholder’s will or trust, or according to Wisconsin intestacy law if there is no estate plan.
Do You Need a Business Succession Plan? We can Help
The estate lawyers of Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. You can request an estate planning consultation with one of our experienced attorneys on our website.