What happens to your business when you die?
Business succession planning is often overlooked when preparing a will or estate plan. Many business owners assume that their company or interests will automatically transfer to their loved ones without issue. However, the reality is more complex. What happens to your business when you die depends heavily on how the business is structured and what, if any, provisions you’ve made in your estate planning documents.
This article explores the legal and practical implications of business ownership after death, highlighting why proper planning is crucial to protecting the future of your enterprise.
Why Business Succession Planning Matters
Many small business owners have a will that doesn’t address their business at all. DIY wills, online templates, and even public trustee documents frequently ignore the presence of a company or trust structure. This can be a costly mistake. If your business or associated trusts aren’t included in your estate plan, you leave your loved ones and business partners facing significant uncertainty.
The fate of your business after death hinges on two major factors: your business structure and the contents of your estate plan.
Sole Director of a Company
If you’re the sole director and shareholder of a proprietary company, your death may leave the business without anyone legally authorised to make decisions. Fortunately, Section 201F of the Corporations Act 2001 (Cth) provides a solution: your executor or legal personal representative can appoint a new director to keep the company running. Often, this is the executor themselves. Once your shares in the company are distributed according to your will, new directors can be appointed by the beneficiaries.
However, if there’s no clear provision in your will—or no will at all—this process becomes more complicated and time-consuming.
Joint Directors and Shareholders
In companies with more than one director, your death won’t stop the business from operating. The remaining directors continue running the company. Similarly, if you hold shares jointly with another person (often a spouse), your shares will automatically pass to them. But if you own shares individually, they form part of your estate and are transferred according to your will or the laws of intestacy.
It’s important to check your company constitution and any shareholders’ agreements. These may contain specific provisions regarding what happens on the death of a shareholder, including rights of first refusal or forced buyouts.
Trusts and Trustee Appointments
Business owners often operate through a family trust for tax and asset protection reasons. The control of the trust lies with the trustee, often a company, and the appointor or principal, who has the power to appoint or remove trustees.
If you die as the sole director of a corporate trustee, your executor may be able to appoint a new director to ensure continuity of control. If the trust has individual trustees, control may revert to the remaining trustee or be determined by the trust deed.
The trust deed is crucial here and must be reviewed as part of preparing your estate plan.
Partnerships and Joint Ventures
If you're in a partnership and one partner dies, the partnership is automatically dissolved under law unless a partnership agreement states otherwise. It’s essential to review that agreement to understand how the assets, liabilities, and client obligations will be handled.
In a joint venture, particularly where individuals are involved, the death of a party may impact the arrangement depending on the terms of the joint venture agreement. These agreements can contain provisions about death and continuity, so it’s important to review and update them regularly.
Sole Traders
Sole trader businesses cease to exist when the owner dies. The business isn’t a separate legal entity, so all its assets and liabilities become part of the deceased estate. This means there’s no legal continuity unless steps are taken in advance to transfer clients, assets, or systems to someone else.
How to Protect Your Business Legacy
If you’ve spent years building your business, the last thing you want is for it to fall apart because of poor planning. Here are key steps you can take to ensure your wishes are followed:
Include specific business provisions in your will: Direct how your shares or control interests should be transferred.
Review your company constitution, trust deed, and partnership or joint venture agreements: Understand what happens upon death and plan accordingly.
Appoint the right executor or personal representative: Choose someone capable of handling complex financial and legal responsibilities.
Seek professional advice: Don’t rely on generic will kits. Every business is different and needs tailored legal advice.
Planning for Business Succession
Proper business succession planning can mean the difference between preserving your legacy and leaving behind chaos. Whether you want your children to take over, sell the business, or pass it on to a partner, those decisions need to be documented clearly and legally.
If you’re unsure what will happen to your business if something happens to you, now is the time to find out. Speak with a solicitor who understands estate planning and business structures to protect what you've worked so hard to build.
Your business deserves a future—make sure it’s one you’ve planned for.