Can a Sole Proprietorship Stay in Operation After the Death of the Owner?
If you own a sole proprietorship that you would like to see continue after your death, you may be in for a disappointment. State laws see you and your sole proprietorship as the same entity. Therefore, when you die, so does your sole proprietorship. However, the person you want to be your beneficiary after your death can use your assets to form his own sole proprietorship.
To insure that your wishes are fulfilled as to who is to receive your assets after you die and who is to control the asset distribution, draw up a will. If you die with no will, it is possible that your assets will be distributed according to the wishes of your state and the courts.
After your death, the person you designate in your will as your trustee or representative is responsible for dissolving the business. The trustee cancels any business licenses, registrations and doing-business-as names. The trustee is also responsible for notifying any city, state and federal tax authorities about your death, filing final tax forms and paying any outstanding taxes from your estate. The trustee also collects any money you are owed and pays any money you owe from your estate.
You cannot leave your sole proprietorship business to a beneficiary, but you can leave your assets to a beneficiary in your will. Your beneficiary can use your assets to establish a new business. If your beneficiary chooses to continue your business as a new entity, he benefits from money coming into the business and takes on personal responsibility for any new outstanding taxes or debt.
Your beneficiary must establish her own sole proprietorship. To do this, she acquires any business licenses, sales tax licenses and permits required in your state for your type of business. Additionally, if she chooses to operate her business under a name other than her own, she must register the DBA name with her state, and the name must be unique for the state. She must also take on all the responsibilities of being a sole proprietorship including unlimited liability for taxes, debts and accidents.
In addition to the option to set up your business a sole proprietorship, in most states, you also have the option to set up your business as a single-member limited liability company or a single-member S corporation business. These business structures are both more conducive to ownership transfer than a sole proprietorship. If you consider these business structures, evaluate with a financial professional whether they are the most financially advantageous option for your company.