What Happens to a Business When an Owner Dies?

January 13, 2022

By Evan Rogdakis

A closely held business is often a client’s largest and most personal asset built over years if not decades.  This may include a restaurant, construction group or even real estate.  Notwithstanding the disposition and succession of that business is not given the corresponding amount of time and energy.  A buy-sell agreement can help to ensure the succession is carried out according to carefully prescribed terms decided upon by the business owner(s).

There are a few common scenarios that our clients face depending on both their family’s dynamics as well as the ownership structure of the underlying business.  

The most common scenario is where there are two or more owners.  These two owners may be family or they may just be business partners, but the issue is the same – is it the intent for a surviving owner to continue the business with a deceased owner’s surviving spouse and/or children? Alternatively, would one or both owners prefer an orderly and predetermined consolidation of the business while providing liquid value to their surviving family members? An agreement as to the ownership after the premature death of an owner, created while both parties are alive and able to voice their opinion may alleviate some ill feelings.  

Another common situation is when a business owner has one or more children where not all are involved in the day-to-day operations of the business.  If the business is left to all the children equally it could lead to a scenario where one child is effectively working for those non-involved children creating a familial rift that parents often try to avoid.  An agreement as to which child will buy out his or her siblings and for how much may solve intrafamily turmoil.  

Lastly, it is common for business owners to decide to have a very view of what retirement may look like for his or her family.  For example, Owner A may want to retire at 65 while Owner B has no intentions of ever retiring.  A buy-sell agreement would allow both parties to discuss the issue and agree upon a resolution prior to the event.  An agreement decided upon years in advance may avoid costly litigation to determine terms and valuation.  

A buy-sell agreement is a legal agreement among two or more owners or between owners and the business itself.  The agreement’s goal is to provide an uninterrupted continuation and smooth transition of the business to the remaining owners or surviving family members.  The agreement may be used for any type of business entity, whether that may be a sole proprietorship, corporation, partnership or limited liability company (LLC).  

Founded by attorneys Andreas Koutsoudakis and Michael Iakovou, KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum as it relates to their business including day-to-day operations and compliance, litigation and transactional matters.

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This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team, or fill out a new client intake form.