When a Business Owner Dies: What the Family and Executor Should Do First

When a business owner dies, the family is grieving while the business still has employees to pay, customers waiting, and bills due. This guide is for the family and the executor. It explains what to do first and what to ask a professional, and it assumes you have read how each business structure behaves in What Happens to My Business When I Die. Business and probate law differ by state, so treat this as a checklist, not legal advice.

What should we find first?

The entity type and its documents. Everything depends on how the business was organized. A Schedule C attached to the owner’s personal tax return points to a sole proprietorship or a single-member LLC, while a Schedule K-1 points to a partnership, a multi-member LLC, or an S corporation, and the K-1 names the entity and its tax ID, as one probate guide explains. Then look for the governing documents: the operating agreement, partnership agreement, bylaws or shareholder agreement, and any buy-sell agreement. These are often in the same file drawer, and the owner’s lawyer, accountant, or business partner may know where they are.

Who has the authority to act?

It depends on the type of business:

• Sole proprietorship. The business and the owner are one legal person, so the business ends at death and becomes part of the estate, leaving the probate court to decide its fate, according to FindLaw. An estate that wants to keep operating a sole proprietorship generally needs a new tax ID (EIN) for the estate, a probate guide notes, citing IRS guidance.
• LLC. The operating agreement says what happens. If it is silent, state law decides, and many states default to dissolution, according to one law firm.
• Partnership. The partnership agreement controls. Without a continuation agreement, the death of a partner dissolves a general partnership, and the survivors may only wind up its affairs, as a professional course explains.
• Corporation. It continues after the owner’s death, but the bylaws, shareholder agreement, or buy-sell agreement control what happens to the owner’s shares.

The executor of the estate, appointed by the court, is the person who can deal with the owner’s interest. See Executor Responsibilities.

What does a buy-sell agreement do?

It is a contract among co-owners, or between an owner and the company, that sets what happens to a deceased owner’s share. A California law firm says a valid buy-sell agreement generally overrides the default rules, often requiring the surviving owners or the company to buy the deceased owner’s interest on set terms. Many are funded with life insurance on each owner, so ask the insurer and the surviving owners how the policy is set up. If there is a buy-sell agreement, read its terms and timelines first.

Should the business keep running or wind down?

The Small Business Administration describes the main options after a sole proprietor’s death: transfer the business to a capable family member, sell it under a prearranged agreement to a buyer outside the family, or close it. Without a plan, the SBA warns, the business may fail and jobs may be lost. If the executor runs the business, the person must understand its day-to-day operations, a professional course notes. In the first days, a practical checklist helps:

• Secure the cash, bank accounts, keys, and passwords, and keep the books and records.
• Tell employees what is happening and how payroll will be handled.
• Notify key customers, vendors, and the landlord.
• Check loans and leases: some lenders can demand payment when an owner dies, as a professional course notes.
• Call the insurance agent about business, liability, and key-person coverage.
• Check licenses and permits and who is allowed to hold them.
• See Digital Accounts After a Death for online accounts the business depends on.

What about taxes?

The business income of the final year goes on the owner’s final return; see Final Tax Returns After a Death. Federal estate tax applies only to estates above the exclusion, which the IRS lists as $15,000,000 for 2026, and some states tax estates at far lower levels. Oregon’s exemption, for example, is $1 million. If a business is a large part of a taxable estate, federal law allows the tax on the business to be paid in installments over up to 14 years when the business interest is more than 35 percent of the adjusted gross estate, according to professional summaries of Section 6166. Farm and business real estate may also qualify for special-use valuation; see Farm and Ranch Estates. Ask a CPA early, because elections have deadlines. See also Estate Tax vs. Inheritance Tax.

Who should we call?

An attorney who handles business and estate matters, and a CPA who knows the business. Together they can tell you who has authority, which agreements apply, and which deadlines are running. An Executor’s Realistic Timeline shows where this fits in the wider process.

What doesn’t this guide cover?

• Valuation and sale of the business, which need a professional appraisal
• Family disputes among heirs or partners, which a lawyer can help resolve
• State-specific business and probate law, which differs
• Review by professionals. This guide needs review by a business and estate attorney and a CPA before it is promoted widely