Last updated: 10 June 2022
When you’ve worked hard throughout your life to build a successful business, wouldn’t it be nice to know that the business will provide for your loved ones after your death? Depending on the nature of your business and the legal structures you have in place, your business may be a great asset for your loved ones – or it could be a source of great stress and frustration.
Click on any of the questions below to jump to that section of this legal FAQ.
- What happens to my business if I die?
- What happens to my business if I die without a Will?
- Can a business continue after the owner’s death?
- How do you close a business if the owner dies?
- What documents should a business owner have in place?
If after reading this guide you still have a question, get in touch as we’d love to keep adding your questions to this article.
What happens to my business if I die?
The answer to this question depends on your:
- Business type (e.g. your business relies heavily on your skills)
- Business structure (e.g. Sole Proprietorship, Pty Ltd Company, Partnership)
- Will and the plan for your estate
In general, your business will need to be handled in accordance with any relevant business structure documents – such as Company Constitution if you have a Pty Ltd Company structure or Partnership Agreement if you have a Partnership structure. Your business will also need to be handled in accordance with your Will (if you have one) or intestacy law (if you don’t).
It is not simply a matter of your spouse, children, employees or partners picking up where you left off and continuing to run your business. There are a lot of legal formalities that they will need to navigate before they can continue running or winding up your business.
Needless to say, it will be a lot easier for them if you spend some time thinking about the situation and setting up structures that provide for a smooth transition and ensure they are able to run your business or receive any income from your business when you die.
What happens to my Sole Proprietorship business if I die?
If you operate your business as a Sole Trader it may have to be terminated upon your death.
As a Sole Trader your business assets are generally held in your own name and you most likely will have an Australian Business Number (ABN) and business bank accounts. It is unlawful to use an ABN held by a deceased person after that person’s death. It is also unlawful to operate the bank account of a deceased person.
However, your legal personal representative (i.e. your Executor if you have a Will or your Administrator if you do not) may be authorised to apply for an ABN in order to wrap up your business and finalise your estate.
It is also possible that business bank accounts may be frozen until probate has been granted. This could take a number of months (or even longer in some cases) which could make it difficult for the business to keep running.
Unless your Will states that your Executor is authorised to keep running the business, then they may not be allowed to do so. Further, if they do try to keep running the business then they could be exposed to personal liability.
Once probate has been granted the assets of the business may be distributed in the manner specified in your Will. Business debts (such as business loans or tax obligations) will need to be paid and any surplus distributed to your beneficiaries.
What happens to my Pty Ltd Company if I die?
If you have been running your business using a Pty Ltd Company structure then the company will continue to exist after your death. However, the issue of what happens to the company depends on your individual circumstances, that of your beneficiaries and the structures and documentation you have in place.
Your Company Constitution or Shareholders Agreement may specify what is to happen. If you were holding shares in the company before your death, then after your death those shares will be held by your estate. However, the company documentation might say that:
- Any other shareholders have the option to purchase your shares from your estate at fair market value or using a predetermined formula; or
- Your estate takes control of your shares of the company (meaning your beneficiaries become shareholders in the company); or
- The company brings in a new shareholder (who may buy your shares from your estate); or
- The company winds down and the business is sold off.
Aside from the transfer of your shares, if you were also a director of the company then the company may need to appoint a new director. If the company is left without anyone who is properly authorised to manage it, things could become complicated. On the other hand, if you have planned ahead and made sure your company was structured in a way to anticipate your succession, then the company may be able to continue operating without too much difficulty.
What happens to my business Partnership if I die?
If you operate your business using a Partnership structure then a number of different things could happen upon your death.
Some Partnerships operate without a written Partnership Agreement – but this can make the situation much more complicated if and when a partner passes away. On the other hand, Partnerships that use a written Partnership Agreement may set out some rules about what is to happen in the event of one of the partner’s death.
Some common partnership arrangements include:
- The surviving partners have the option to purchase your share of the Partnership from your estate at fair market value or using a predetermined formula; or
- Your estate takes over your share of the partnership (meaning your beneficiaries become partners in the business); or
- The Partnership brings in a new partner (who may buy your share of the Partnership from your estate); or
- The Partnership winds down and the business is sold off.
If the Partnership is wound down the assets may be liquidated and your share of the assets (after any liabilities have been accounted for) may be distributed to your beneficiaries.
What happens to my business if I die without a Will?
Each State and Territory of Australia has a body of law relating to intestacy – which is the situation that arises when somebody dies without a Will.
If you die without a Will your local intestacy laws will apply to your estate generally, including any business assets that form part of your estate. If you have relevant business structure documents in place, then these will apply and may set out some rules about how to deal with the business.
One significant consequence of dying without a Will is that it is likely to take some time, possibly months, before anyone is authorised to act for your estate. Your next of kin will have to apply to the courts to obtain authorisation and to arrange a Power of Attorney if there is no will – and this process can take many weeks.
If the business does not have other people available to manage it – such as other directors or business partners – then the business and assets may be frozen. On the other hand, if you had a Will in which you authorised your executor(s) to operate your business, then the executor(s) may be able to step in straight away and minimise any business disruption.
What happens if a sole shareholder dies?
A sole shareholder is someone who is the only shareholder in a company. Usually if someone is the sole shareholder of a company they will also be the sole director of the company.
If a sole shareholder dies their shares form part of their estate and may be distributed to their beneficiaries. If there is no Will there may be a delay in the next of kin obtaining any rights to continue to manage the company and business – which may be quite detrimental to the day-to-day running of the business.
In addition, with a small business the value of the company (and thus the value of the shares) may be closely linked to the services performed by the owner. For example, in a plumbing company where the owner is a plumber with a large network of customers and a strong reputation for high quality work, if the owner dies their reputation is likely to go with them and this may substantially impact the ongoing value of the business. Most customers are likely to find a new plumber to do their work.
The deceased owner’s shares of the company could be transferred to their spouse or children, but the shares may not continue to be worth much if the customers have moved on and there is nobody to perform the plumbing work. Most of the remaining value in the company may be related to tangible assets such as vehicles, tools and cash in the bank. Therefore, it might make sense for the company to be wound down and the client list and assets sold off quickly, so that the sale proceeds are preserved and can be shared amongst the beneficiaries.
What happens if a sole company director dies?
If the deceased person was the only director then the company may be left without anyone who is authorised to immediately operate and manage the business. The business may be temporarily frozen and unable to perform day-to-day functions until the Public Trustee steps in to manage the estate or the Letters of Administration are issued by the Supreme Court.
Under Section 201F(2) of the Corporations Act 2001 (Commonwealth) (the “Act”), if a company’s sole director and shareholder dies then the deceased person’s “personal representative” (meaning their Executor if they left a Will or Administrator if they did not leave a Will) can appoint a person as the company director in order to carry on the company’s business. Under Section 201F(4) of the Act, the “personal representative” can appoint themself as a director.
If the deceased person leaves a Will, then their Executor will be able to rely on these sections of the Act to carry on the company’s business. This will allow them to either keep running the business or arrange for the business to be wound down and assets sold and proceeds distributed to the beneficiaries.
However, if the deceased person does not leave a Will, then things can be more complicated as there will be no “personal representative” for the deceased person’s estate until the Public Trustee steps in and takes on the role or the Supreme Court grants Letters of Administration to someone to administer the estate. This can take weeks or even months.
Can someone inherit my business?
When we talk about a “business” we are talking about the set of commercial structures, relationships and assets that are used to generate an income. For example, a plumbing business could involve a business name, website, work vehicle, tools, uniforms, bank accounts, employees and a hard-earned reputation. An online shopping business could involve a business name, website, some proprietary software code, logo, sub-contractors, bank accounts and supply contracts.
So in some cases, it is possible to effectively inherit a business. For example, if you inherit 100% of a company and that company runs an online store, then you might receive the company together with all of its assets and you might be able to pick up where the deceased owner left off.
In other cases, it might not be so straightforward. For example, if the deceased business owner held certain licenses or qualifications which you do not have (such as electrical qualifications) then you might not be able to keep running the business.
Can a business continue after the owner’s death?
Yes, this can happen in some circumstances. But it depends on the structure of the business.
If the deceased business owner was a Sole Trader, then the business may terminate upon their death. The business assets will form part of their estate and will be distributed to their beneficiaries or sold off so that the proceeds can be distributed to the beneficiaries.
If the business was held in some other structure, such as a Pty Ltd Company or Partnership, then it may be possible for the business to continue after death. If the deceased business owner had other shareholders or business partners then it is possible for the business to continue, as they could continue running the business.
How to save a business after the death of the owner?
This depends on the nature of the business and the extent to which the deceased owner was critical to the business.
If the business depended heavily on the owner’s personal reputation and skills, then this could be a challenge. For example, for restaurants that are run by a popular chef, customers will need to be confident that they are still going to get the same quality of food even though the chef/owner has passed away. So it would be necessary to work out how you are going to achieve this, such as hiring a new chef and communicating with customers to let them know that the show goes on.
Other businesses that are less reliant on an individual owner may stand a better chance of survival. For example, online stores that operate without the need for a visible spokesperson may be able to continue without too much of a hitch.
As a business owner, you can make things easier for your inheritors if you develop a succession plan in advance. You may need to make sure it is easy for them to access important business information, for example, by filing documentation in a safe place and letting them know how to find it. You can also prepare a Will so that the estate and the business transition can be handled quickly and smoothly.
In any case, it is important to try to transition quickly and to communicate clearly with customers, suppliers and other key stakeholders.
How to announce the death of a business owner or partner?
Many businesses choose to make the announcement in writing. This can be an efficient way to get the message to a large number of clients and associates at the same time. It also allows the business to get the tone right and to include all relevant details.
In the communication it is OK to get straight to the point with a message such as “Regrettably, I am writing to inform you of the recent passing of Jane Doe, Partner at ABC Company”.
Depending on the nature of the death, it may be appropriate to provide some details about what has happened. For example, if the deceased owner has been fighting a terminal illness it may be appropriate to mention that they have been fighting valiantly for several years but the illness finally got the better of them. In other cases, you might choose to be more discreet about the details.
It is a good idea to include relevant details about funeral services or memorials – such as the date, time and location of any services or the family’s wishes regarding memorials, privacy, etc.
If the business is going to continue operating, then this is also a good time to reassure clients about the business’s commitment to them. You can mention that there may be some adjustment as you work to fill the gap left by the deceased owner but that the other business owners look forward to continuing to serve them. If the business is going to be closing down then you may want to provide some information about the timing and any relevant specifics.
What happens to employees when a business owner dies?
If the business is going to keep operating, then the employees should be able to keep their employment.
If the business is being wound down, then the employees may be terminated and will need to be paid out all of their entitlements before any business assets are distributed to the beneficiaries.
Do business accounts get frozen when someone dies?
If a business is left without anyone with the lawful authority to immediately access the business accounts, then it is likely that the accounts will be frozen.
This is much more likely for a business with a single owner – such as businesses that operated under a Sole Trader structure or Pty Ltd Company with a single shareholder/director. For bigger organisations, such as Partnerships or companies with multiple shareholders and directors, the business accounts will remain open as the business will be left with one or more people who have the legal authority to operate the accounts.
If accounts have been frozen, then the deceased person’s personal representative (i.e. Executor or Administrator) may be able to access the accounts in order to deal with the estate.
How do you close a business if the owner dies?
It is important to communicate with the business’s customers, employees, suppliers and associates.
If you plan to terminate employees, then you will need to check on their legal status and make sure you are acting in accordance with Australian employment law, their employment contracts and any employment award or enterprise agreement.
If the business had other contracts such as software subscriptions or supply agreements, these will need to be terminated. In some cases, you may need to review these contracts and seek legal advice so that you can find a way out of them which is cost effective and which does not create additional legal risks.
Regardless of the business structure, it will be necessary to account for the assets and liabilities of the business. All liabilities, such as loans, tax debts or employee entitlements, will need to be paid out. Assets may be sold off and the proceeds (after payment of any debts) can be distributed to beneficiaries.
You will also need to cancel the business’s GST registration and ABN. If the business was operated under a Pty Ltd Company and the business is being wound down, then you will need to submit an Application for voluntary deregistration of a company (Form 6010) with ASIC.
Work closely with the business’s accountant to find the best method to finalise the estate – ensuring all invoices are paid, both in favour of the company as well as to suppliers, and all taxes and other filings are completed.
How to avoid taxes when the owner of a business dies?
If the business has a tax liability at the time of the owner’s death, then this will need to be paid before the business is wound down and any proceeds distributed to the beneficiaries.
While there are no specific death or inheritance taxes in Australia, there is still the possibility of a tax bill when a business owner dies. For example, capital gains tax can apply when assets like shares or an investment property are sold. If these assets do not need to be sold, then it may be possible to reduce the tax payable.
Some business structures can offer favourable tax treatment. For example, many small business owners structure their businesses with the use of a family trust. As always, the best results come from seeking advice and careful planning in advance.
What business debts are forgiven after the owner’s death?
If you have a HECS-HELP debt at the time of your death, then this may be forgiven.
Other debts and all business debts will need to be paid out of the assets of the company or your estate. If there is not enough money in your estate to pay the personal debts, then in some cases the debt may be forgiven. Debts in Australia do not generally pass to your beneficiaries – they are offset against any money in your estate that would otherwise pass to your beneficiaries.
Any debts held in joint names will pass to the surviving partner. For example, if you and your spouse had a credit card in joint names, then when you die your spouse would still be liable for any debt on that card.
In addition, any debts that are secured against some of your property could be paid from the proceeds of sale of that property. For example, if you had an investment property which has a mortgage against it, then the mortgage would need to be paid out before the property (or sale proceeds) could be transferred to your beneficiaries.
What documents should a business owner have in place?
If you own a business then you can make things much easier for your family and business associates by spending some time getting the right structures and written documents in place before you die.
For estate planning purposes it is always a good idea to prepare a Will – which appoints one or more people as Executors with the authority to immediately manage your business and personal affairs in the event of your death. At the same time, many people choose to prepare a Power of Attorney for general affairs and appointment of an Enduring Guardian for medical purposes.
Regardless of the business structure that is being used, there are a range of documents that business owners should have in place, including:
- Employment Agreements
- Contractor Agreements
- Supplier Agreements
- Policy and procedure documentation
- Business Terms & Conditions, etc.
Business owners who use a Pty Ltd Company structure should also have all of the relevant company documents in place – such as a Constitution and Shareholders Agreement. They may also consider having a Company Power of Attorney.
Business owners who use a Partnership structure should also make sure that they have a written Partnership Agreement in place. Although it is possible for a Partnership to operate under a verbal Partnership Agreement, the death of a partner will be much easier (and cheaper) to deal with if there is a written Partnership Agreement.
What other steps should business owners consider?
If the business owner wants to prepare for the business to be handed on to one or more of their heirs then there may be additional steps that they can consider.
For example, they may choose to bring those heirs into the business at an earlier date and start preparing them to take it over. Assuming they trust that their heirs already have the appropriate level of integrity, maturity and responsibility, the business owner may consider giving them the necessary authorisations (e.g. company accounts and IT systems). If the business owner uses a Pty Ltd Company structure then they might consider appointing their heir as a director or if they use a Partnership structure then the heir could be made a partner.
Aside from having the legal documents and structures in place, there may also be some practical steps to consider – such as how to locate crucial business information or how to access their systems, software and accounts. The business owner may need to consider compiling the necessary information and storing it in a safe place, such as with their Will.
Ultimately, the best approach for you as a business owner will depend on the nature of your business, your family and your personal wishes. So take some time to think about what you want to do – and seek professional advice!
And ensure you have everything in place before you need it.
We hope you found this legal FAQ on what happens to my business if I die helpful.