When a business owner dies, the family faces two losses at once. There is the person, and there is the business that may be the family's income and a team's livelihood. Customers still call, bills still arrive, and employees want to know what happens next. The answer depends mostly on how the business was set up. This guide explains what happens to a sole proprietorship, an LLC, and a corporation, and what to do in the first weeks.
It depends on the structure. A sole proprietorship is not separate from its owner, so its assets and debts become part of the estate. An LLC follows its operating agreement, then state law. Shares of a corporation pass through the estate or a trust, subject to any shareholder or buy-sell agreement. In every case, someone needs legal authority to act before the business can be run, sold, or closed.
- Find the business documents and the will or trust first.
- A personal representative may need court authority to keep the business open.
- A single-member LLC with no successor plan can dissolve if no one is admitted as a member.
What Happens Depends on the Business Structure
| Structure | What happens at the owner's death | What controls |
|---|---|---|
| Sole proprietorship | No separate entity. Assets and debts are part of the estate | Will or intestacy, plus probate authority |
| Single-member LLC | The member is dissociated, and the interest passes to the estate. The LLC can dissolve if no member is admitted | Operating agreement, then state LLC law |
| Multi-member LLC | The deceased member's interest passes to the estate. Heirs usually get financial rights, not management rights | Operating agreement, then state LLC law |
| General partnership | The partnership agreement decides. Without one, state law applies. Under Florida's act, a partner's death dissociates that partner, and in a partnership for a set term the remaining partners can vote to wind it up | Partnership agreement, then state law |
| Corporation or S corporation | The owner's shares pass through the estate or a trust. The corporation continues | Bylaws, shareholder or buy-sell agreement, and the will or trust |
The most important document is usually the one that governs the entity, so find it first. State law differs, so treat the rules below as examples and confirm them for your state.
Sole Proprietorship
A sole proprietorship has no legal existence apart from its owner. When the owner dies, the business equipment, inventory, accounts, and customer lists are part of the estate, and so are the business debts. They pass under the will, or under state law if there is no will. Nothing automatically transfers to a spouse or child just because they helped run the business.
Who can run it
Someone with legal authority has to act. That is usually the executor named in the will, appointed by the court through letters testamentary, or an administrator appointed by letters of administration. Under the Uniform Probate Code, as adopted in a number of states, a personal representative may continue an unincorporated business in the same form for up to four months after appointment if continuing is a reasonable way to preserve its value, and for longer only with a court order. Your state may set a different limit, so ask a probate attorney.
Tax identification
The IRS lists representing an estate that operates a sole proprietorship after the owner's death as a reason to get a new employer identification number (EIN). The estate also needs its own EIN for estate returns. Publication 559 tells the personal representative to apply for one as soon as possible and to file Form 56 to notify the IRS of the fiduciary relationship.
LLC
An LLC is a separate legal entity, so it keeps existing when an owner dies. What changes is who owns the owner's share and who can manage the company.
The operating agreement comes first
A good operating agreement says what happens when a member dies. It may give the other members the right to buy the interest, name a successor, or let heirs step in. If the agreement is silent, state law fills the gap, and the default may not match what the owner would have wanted.
What state law says when the agreement is silent
Many states have adopted the Revised Uniform Limited Liability Company Act. Florida's version is an example:
- An individual member is dissociated when the member dies (Fla. Stat. § 605.0602).
- The member's legal representative may exercise the member's rights for the purpose of settling the estate (§ 605.0504).
- A transferee, which can include an heir, receives distributions the member would have received, but does not gain the right to participate in management (§ 605.0502).
In practice, an heir may share in profits without having a vote. That can frustrate both the family and the remaining members.
The single-member LLC trap
If the only member dies, the LLC has no members. Under Florida's act, an LLC dissolves after 90 consecutive days with no members unless transferees holding a majority of the distribution rights agree to admit at least one person as a member (§ 605.0701). Other states use different periods and steps. A single-member LLC should name a successor in the operating agreement. If it did not, ask an attorney right away what your state requires.
Corporation and S Corporation
A corporation continues after an owner dies. The owner's shares are part of the estate, and they pass under the will or trust. If the corporation has several shareholders, a shareholder agreement or buy-sell agreement may require the remaining owners or the company to buy the shares, often at a price set by formula.
S corporations have an extra rule. Federal law lets an estate hold S corporation stock, and certain trusts can hold it too, including testamentary trusts that receive stock under a will, for two years (26 U.S.C. § 1361). An S corporation also cannot have more than 100 shareholders or more than one class of stock. If shares will pass to heirs or a trust, a tax professional should confirm the S election survives.
The First Steps
Take these in order, and ask for help early. You do not need to make big decisions in the first weeks.
- Find the documents. Look for the operating agreement or bylaws, any buy-sell agreement, the will or trust, insurance policies, bank accounts, loans, leases, and licenses.
- Confirm who has authority. Check who is named as executor, manager, or successor, and whether court appointment is needed first. See how to be an executor.
- Protect the business. Keep insurance in force, secure the premises and records, and keep cash and customer data safe. Keep business and personal money separate.
- Notify the people who need to know. That usually means the bank, key lenders, the landlord, the insurance agent, and a lawyer and accountant. Tell employees and key customers in a calm, plain message.
- Keep obligations current. Payroll, taxes, rent, and loan payments continue. Ask each agency and lender how it handles the death of an owner, and check any personal guarantees the owner signed.
- Check licenses and accounts. Professional, health, and business licenses may not transfer. Online accounts and domain names should be secured. See digital assets after death.
- Get a valuation and advice. Before selling, closing, or changing anything major, talk to an attorney and an accountant.
For the personal side of the estate, our guides to how to settle an estate and what happens to debt when someone dies cover claims and bills.
Taxes
Final return and estate return
The decedent's final income tax return is due when it would have been due if death had not occurred, generally April 15 of the year after the year of death (IRS Publication 559). The estate may also need to file its own income tax return on Form 1041 for income it earns after death, including from the business.
Estate tax
Most estates owe no federal estate tax. The IRS filing threshold for 2026 is $15 million. Some states have lower thresholds. See does your estate pay taxes. If a federal estate tax is due and the estate is mostly a family business, Section 6166 may let the executor pay in installments when a closely held business interest is more than 35 percent of the adjusted gross estate. The first payment can be deferred up to five years, and the tax can then be paid in as many as ten equal annual installments, with interest.
Basis
Inherited business property generally gets a basis equal to its fair market value at the date of death (26 U.S.C. § 1014). If heirs sell soon afterward, the taxable gain may be small. A tax professional should review this before a sale, because specific assets and entity types can be treated differently.
Keep, Sell, or Close
| Option | What it involves | Think about |
|---|---|---|
| Keep it in the family | A successor takes over under the will, trust, or agreement | Skills, interest, and whether the heirs agree |
| Sell to co-owners | Often required or allowed by a buy-sell agreement | Price formula and funding, such as life insurance |
| Sell to an outside buyer | Needs a valuation and authority to sell | Timing, because value can fall if the business drifts |
| Wind down and close | Collect receivables, sell assets, pay creditors, cancel licenses | Debt priority and tax filings |
Value can drop quickly when the owner was the main source of customer relationships. If a sale is likely, move soon, but not before you have authority and advice.
If You Own a Business Yourself
Most of the pain above can be avoided with a short plan. Even a simple one helps.
- Name a successor in writing, and make sure that person is willing and able.
- Update the operating agreement or bylaws to say what happens at death, especially for a single-member LLC.
- Consider a buy-sell agreement if you have partners, and think about how it will be funded.
- Coordinate your will or trust with the business documents. A living trust can hold business interests, but the entity documents still have to allow it.
- Sign a power of attorney that covers business matters. See what is power of attorney.
- Keep a one-page list of accounts, advisors, licenses, and key contacts.
Planning costs are covered in how much estate planning costs. A business owner usually needs an attorney for this, because the entity documents and the estate plan have to fit together.
Common Mistakes to Avoid
Acting without legal authority
Signing contracts or moving money before anyone has been appointed can create problems for the family. Get authority first.
Mixing business and personal money
Keep records separate. It protects the estate and makes the taxes easier.
Ignoring the operating agreement
It may already say who gets the business and at what price.
Letting a single-member LLC lapse
The clock on dissolution can start at death. Ask an attorney how your state handles it.
Waiting too long to talk to employees and customers
People worry when they hear nothing. A short, honest update helps keep the business steady.
Frequently Asked Questions
We reviewed this page against federal law, IRS guidance, and state statutes used as examples. Business and probate law differ by state and by entity type. Consult a licensed attorney and a tax professional for advice specific to your situation.
- IRS Publication 559: Survivors, Executors, and Administrators
- IRS: Do you need a new EIN?
- IRS: Estate tax
- 26 U.S.C. § 6166: Extension of time for payment of estate tax where estate consists largely of interest in closely held business (Cornell LII)
- 26 U.S.C. § 1361: S corporation defined (Cornell LII)
- 26 U.S.C. § 1014: Basis of property acquired from a decedent (Cornell LII)
- Florida Statutes § 605.0602: Events causing dissociation
- Florida Statutes § 605.0504: Power of legal representative of deceased member
- Florida Statutes § 605.0502: Transfer of transferable interest
- Florida Statutes § 620.8601: Events causing partner's dissociation
- Florida Statutes § 620.8801: Events causing dissolution and winding up of partnership business
- IRS: Instructions for Form 1041 (estate income tax return)
- Florida Statutes § 605.0701: Events causing dissolution
- Idaho Code § 15-3-715: Transactions authorized for personal representatives (Uniform Probate Code § 3-715)
Page last reviewed: October 6, 2026