What happens to your business ownership interest when you die?

| May 18, 2021 | Business Law |

You and your business partners have worked tirelessly to build your company from the ground up. After all your years of sacrifice, you don’t want the fruits of your labor to dissipate and to be of no good to your loved ones once you’re no longer around. How can you make sure that your business ownership interests survive you and benefit those you care about after you pass away?

Buyout agreements

You and your partners might have established a buyout agreement when you formed the company. This is an agreement that obligates the remaining partners to compensate a partner who leaves the company for their proportion of ownership interest.

Make sure you read the terms of your agreement carefully and amend it if you have to. Some agreements only bind the remaining partners if you decide to leave the company willingly or are kicked out.

Some, on the other hand, include death as one of the events that trigger a buyout. If this is the case, then your partners that survive you will pay the value of your ownership interest to your estate, for your executor to distribute to your beneficiaries or heirs.

Successor

Maybe you have a child, friend or other person who you’d like to see carry on your position as part-owner of your company after you pass away. If this is the case, you could work with the attorney crafting your estate plan to include a mechanism whereby your executor will convey your ownership interest to the chosen person upon your death.

It’s a good idea to have an open discussion with your business partners about this plan before you implement it. Make sure that they’re on board, so that you can avoid potential conflict between them and your successor down the road. You don’t want the conveyance of your ownership interest to lead to the company falling apart, and you certainly don’t want it to lead to litigation for your chosen successor.

Death is the end of some things, but it doesn’t have to be the end of your company. With the right foresight – and the right estate planning tools – you can make sure that the ones you leave behind get some benefit from the business you’ve put years into building.