The first thing to consider is that your business itself is an asset, your share/interest in a business is an asset with independent value, completely separate from the income generated from the business.
If you are a business owner, you might assume that if you die, your business, or share in a business, may go directly to your family, or your business partner. If you are in business with a partner, and that partner dies, you may assume that the business then becomes yours, full stop. Both are common misconceptions, and it is best to consult with an attorney, so you are prepared if/when the issue arises.
What happens to a sole proprietorship?
If you die, your sole proprietorship terminates immediately, and the assets become part of the business owner’s estate in probate court and in effectuating the owner’s will and estate planning documentation.
If this happens, it is important to understand that the business assets could be liquidated to pay off debts and the rest will be distributed to heirs and beneficiaries according to the will. If there is no will, the assets will be distributed according to Ohio probate law.
If the business is not put into a trust, probating the business will be lengthy and the assets will be depleted. If you are a sole proprietor with no will or trust for your business, contact a business attorney to help you protect your business and your family.
Limited Liability Company
If you have a limited liability company, your operating agreement should specify what will happen in the event of the death of a business owner/partner. In Ohio, the default law provides that the executor of the deceased partner’s estate has the power to determine what happens to the business interests. See Ohio Rev. Code 1705.21(A)
This Ohio law was interpreted by an Ohio Supreme Court in Holdeman v. Epperson, 2006-Ohio-6209 and the Court held that the executor of the estate of a deceased member of a limited liability company has all rights that a member had prior to death for the limited purpose of settling the member’s estate of administering his property.
Oftentimes, the executor will insist on a business valuation to determine what the deceased partner’s share of the business is worth. Having an understanding of this process, what, when, and how it will occur beforehand, can be very helpful to the family members of the deceased partner and the remaining partners who are trying to continue operating the business.
The Ohio Revised Code incorporates the Uniform Transfer on Death Security Registration Act in on ORC 1709, which allows for members of an LLC to designate a beneficiary of their securities in the event of their death. However, for this to be seamless, the LLC’s operating agreement must specify the members in the company and state that they are transferable upon death.
There are ways to prepare for this, contact Wick Law today to discuss estate planning that taking into account your business, your family and your business partners.
Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at firstname.lastname@example.org. Wick Law, LLC is located in Columbus, Ohio.
(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)
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