What Happens to a Business When the Owner Dies?
The death of a business owner is a challenging time, both emotionally and practically. For families and colleagues, understanding what happens next—whether the business is a sole proprietorship, partnership, or limited company—is crucial for protecting the value of the business and ensuring the deceased’s wishes are respected. This guide explores what happens when the sole owner of a limited company dies, the fate of shares, and the steps executors and families should take.
Operating a Business During Probate
Sole Traders:
When a sole trader dies, the business does not continue in its existing form. The business assets and liabilities become part of the owner’s estate. Executors may temporarily continue operations to complete outstanding work or prepare the business for sale or closure, but must act in the best interests of the estate and avoid personal liability.
Partnerships:
For partnerships, the partnership agreement is key. It will usually specify if the partnership dissolves or continues with the remaining partners. Without an agreement, the death of a partner often leads to automatic dissolution, though surviving partners may have the option to buy out the deceased’s share.
Limited Companies:
In a limited company, the business is a separate legal entity. When a director or shareholder dies, their shares form part of their estate and are passed on according to their Will or, if there is no Will, under intestacy rules. The company’s articles of association and any shareholders’ agreement will guide the process of transferring shares and appointing new directors.
What Happens When the Sole Owner of a Limited Company Dies?
If the sole owner is both the only director and shareholder, the company can face immediate operational paralysis, as no one is authorised to manage the company or access its bank accounts. Under the Companies Act 2006, if Model Articles are in place, the personal representatives (executors) of the deceased shareholder have the right to appoint a new director, allowing the company to continue trading. If the company has bespoke articles or was incorporated before 2006, a court application may be required, causing delays and potentially harming the business.
- Notify Companies House of the director’s death within 14 days.
- Check the company’s articles of association for provisions on director appointments and share transfers.
- Personal representatives may need to be registered as shareholders before appointing a new director.
- If there are other shareholders, they can appoint a new director at a meeting
What Happens to Shares When Someone Dies?
- Shares pass to the personal representatives (PRs)—the executors named in the Will or administrators if there is no Will.
- PRs can choose to register themselves as shareholders or transfer the shares to beneficiaries.
- The company’s articles of association may contain restrictions, such as pre-emption rights or the directors’ power to refuse a transfer, so these must be checked carefully.
- For jointly held shares, legal title usually passes automatically to the surviving shareholder.
Death of Director in Private Limited Company: What Happens Next?
If a director dies and there are other directors, the company can continue as normal. The remaining directors divide responsibilities and may appoint a replacement if needed. If the deceased was the sole director, the process depends on the company’s articles and shareholding structure. Executors may need to be registered as shareholders before they can appoint a new director, or a court order may be required.
Key Considerations for Executors and Families
- Review partnership or shareholder agreements early.
- Maintain insurance and legal protections for the business.
- Consider the impact on employees and clients.
- Obtain professional valuations for business assets or shares.
- Seek legal advice before continuing or disposing of any business interests.
