(3 minutes to read)  Are you a business owner, having ever wondered what would happen to your business if you died or became incapacitated? I'm Katherine Taylor, the lawyer for business owners, and I'm going to explain three different ways that your asset — which is the ownership interest in your business — will be handled.

First, if you have an owner's agreement — which for an LLC is called an operating agreement, or for a corporation would be called a shareholders' agreement — that agreement can dictate who your business ownership interest goes to and can put conditions upon the ownership of that interest. So, let's say you are a consultant with another person — another owner — and you decide that the best person to receive that interest should you die, is your co-owner. The operating agreement, or the buy-sell agreement — shareholder agreement — can state that, and that's great. There can even be a price attached. 

Let's say, however, you don't have an operating agreement or a shareholders' agreement. Then what will happen is ownership interest is considered an asset, that asset will pass according to a Will — if you have one — or a Revocable Living Trust — if you have one. That may not be the best idea because most of the time your Will is going to state who your beneficiaries are for most of your personal assets. It might be a spouse, children, relatives. It probably will not include your business partner in that planning. You could, but most Wills don't. 

So, let's say, however, if that happens, if you have a Will and the Will states that the ownership interests will go to, let's say your spouse, then what will end up happening is your spouse becomes — would become a 50% owner in that consulting business and your spouse probably doesn't even do that kind of work or even know how to run that business or doesn't have the time to or doesn't want to. That's not the best situation.

And let's then look at a situation where you don't have an operating agreement or a Will, then your asset is basically going to be subject to the laws of Intestacy, which, based on the state, could mean that your assets will be transferred to a certain list of heirs or beneficiaries. That is not a good way to handle any asset, but certainly not a business asset. 

The best way to ensure that your business ownership interest is passed to a qualified perso, who can run the business, is to make sure you have a very comprehensive operating agreement or shareholder agreement for your ownership interest in your business. We do these all the time. We do very complex agreements, and we do even more simple agreements. Please call us. Our contact information is below.