How to shut down a business after a loved one passes

If you have a loved one who has recently passed away, and owned a business at the time of their death, handling their estate can seem daunting and complicated. Luckily, shutting down a loved one’s business is simpler than it appears, and in this article we’ll break down the process into manageable steps.

How you go about shutting down a business depends on what kind of business it is. The first step is to learn what kind of business it was filed as: a sole proprietorship, LLC (Limited Liability Corporation), or corporation. You can learn more about the differences between them here. Usually, most small businesses are either sole proprietorships or LLCs, so we’ll focus on those types here. 

Sole Proprietorship

A sole proprietorship is a type of business where the owner and the business are legally considered one entity, which essentially means the business assets and liabilities are considered the owner’s personal assets and liabilities. Legally, this means that the business ends when the owner dies.

If your loved one owned a sole proprietorship business, then everything the business had (debts, profits, etc.) is just considered part of their estate, and they will be dealt with like all of their other assets. If your loved one had a will, then their liabilities and assets from their business will be lumped with their other liabilities and assets and divvied up according to their wishes. If there is no will, the government will handle the estate. 

LLCs 

LLCs are different in that they are formed through an operating agreement, which should specify what will happen in the event an LLC owner dies. If there are multiple owners of the LLC, and the agreement allows for the LLC to continue after the death of an owner, the surviving owners could vote to buy-out the deceased member’s ownership or add in a new owner in their place. If your loved one was the only owner, then the operating agreement should state what should happen in the event of their death. 

If Your Loved One Left A Business To You 

In both of the above cases, once your loved one has passed, the government (depending on the operating agreement for LLCs) views the business as automatically shut down. However, if your loved one intended for the business to keep operating after their death, they may have included the business and its assets to you as a specific gift in their will, or placed it in a trust so you could manage the business.

But what if you don’t want to take ownership of the business? In this case, when ownership of the business was transferred to you (note: this can only be done with an LLC, not a sole proprietorship), you may have to legally dissolve it. If you do not dissolve the business, it is still considered operating and you may be exposed to continued taxes and filing requirements. To dissolve a business, you have to file dissolution documents with your state. To find these forms, visit the secretary of state or corporations division website of your state here. (The forms should be called certificate of dissolution, certificate of cancellation, articles of dissolution, or something similar.) Typically, the form will just ask for the name of you and the company, as well as a small fee for filing the form. If you have further questions on the paperwork, most states provide clear instructions and have contact information for inquiries. You can also consult legal professionals to help file these forms. 

Handling the estate of a loved one can be difficult, but this article can guide you into next steps when it comes to the loved one’s business, and hopefully ease the burden off your shoulders.

— Avery Tamura