Will My Florida Small Business Die With Me?
Many Florida residents have, or plan to set up, their own small business. There a number of legal challenges every small business owner faces. But one question that many forget to ask until it’s too late is–What happens to the business when I die?
The answer to this question greatly depends on how the business itself is structured under Florida law. Below is a brief guide to what generally happens to different types of business when an owner dies.
Sole Proprietors & Single-Member LLCs
If you are a sole proprietor, then there’s no legal distinction between you and the business, at least as far as the IRS is concerned. Any income you earn is reported on your individual income tax return (via Schedule C). And even if you choose to organize as a one-member limited liability company (LLC) with the State of Florida, this entity is disregarded for tax purposes, so you are still treated as a sole proprietor.
When a sole proprietor dies, any assets in their estate may need to be sold in order to pay off business creditors. After all, the business may die with the owner, but its debts will not. Whatever business-related property remains will then be distributed according to the terms of the proprietor’s will (or trust, if he or she had one).
In the case of a single-member LLC, the sole proprietor may have an operating agreement in place that specifies what should happen to the business in the event of the member’s death. For instance, the agreement may state the business should be transferred to a family member or partner who can carry on. But it’s important to make this clear in writing–a sole proprietor should never assume their family or employees “will know what to do.”
In the case of an LLC with two or more members, the business will normally continue after one member dies. The operating agreement should have provisions in place for dealing with the share of a deceased member. For example, many LLCs have a “buyback” provision allowing the surviving partners the first chance to buyout the deceased member’s interest from his or her estate. Absent such provisions, the deceased member’s share is simply treated as another asset of his or her estate.
If a small business is organized as a corporation–even one where a single owner controls 100 percent of the stock–then death has no immediate effect on the corporation’s existence. Instead, the stock itself will pass according to the terms of the deceased shareholder’s estate plan, or if no such plan exists then under Florida intestacy law. But in the case of a Subchapter S corporation, a principal owner’s death could trigger some additional issues, as there are restrictions on the types of individuals who can own stock in such businesses.
Speak with a Florida Estate Planning Lawyer Today
Regardless of the type of legal entity you use for your small business, your estate plan needs to include proper business succession planning. If you need advice or assistance from a qualified Fort Myers estate planning lawyer, contact the Kuhn Law Firm, P.A., at 239-333-4529 today.