Posts Tagged ‘death of a small business shareholder’

This is more problematic since a corporation can continue after the death of the shareholder/owner – but maybe not for long.  Incorporation is usually done for two reasons:  lower tax burdens on business income and a perceived (albeit incorrect) perception that all liabilities of the corporation are that of the corporation only.

It is imperative that a succession plan and an estate plan be in place to keep the corporation a going concern and solvent. The death of a small business shareholder triggers certain events:

  • The equity in the business is now the property of the deceased shareholder’s estate.
  • If there are bank loans in place pre-death, the guarantees shift post-death. The estate of the deceased shareholder becomes the de facto guarantor of the loans of the business.
  • The appointment of an estate representative of the deceased shareholder’s affairs is very important because he/she may have to oversee the day-to-day business affairs until the business is sold or closed.
  • Any salary paid to the deceased shareholder (as President or CEO) pre-death doesn’t have to continue post-death. However, if the family income of the deceased was close to 100% of the income of the household, this becomes problematic.
  • In cases like the above, any payments post-death to a spouse (without any reasonable (legal) right to receive this payment) is a capital drain on the business and may be questioned.
  • If the deceased shareholder was an Officer of the business and had signing authority at the bank for cheques, the estate representative needs to meet the bank officials armed with both a death certificate and a copy of the will of the deceased. The will should corroborate and name the estate representative as the person who will replace the deceased as signing authority.
  • Hopefully there is a good management team in place to keep the business operational (as a going concern) until a decision on its future can be finalized.
  • The estate representative should meet (post haste) with the company management team to introduce himself/herself and get a very concise explanation of the activities of the business and pressing issues.

More to come on this important topic.