Assets of Sole Proprietorship After Death

A sole proprietorship is the simplest form of legal business structure. Along with its simple structure, it carries with it the disadvantage of personal liability. This means that losses and damages incurred while in business are passed on to the sole proprietor. Due to the lack of separation between the business entity and the owner, a sole proprietorship essentially exists as long as the owner is alive. However, various scenarios may unfold concerning assets of a sole proprietor after death.


  1. Upon the death of a sole proprietor, assets may be transferred together with the estate of the owner. The estate is composed of property such as land or a home. This transfer of assets is done through the provisions of a written valid will, where the proprietor dies testate. In case the proprietor passes on without a written will -- intestate -- a probate court applies the state's laws to allocate these assets.


  1. An estate administrator may sell the assets of the sole proprietorship to one of the family members. This determination is usually done at the settlement stage where family members agree on how to distribute the assets equitably. A family member who buys the business and its assets may choose to continue with the business under his own name. Likewise, he may elect to sell the business to another family member, employ someone else to operate it for him or take up a partner for the business.


  1. Following the death of a proprietor, the family liquidates all assets of the business to meet any debt incurred by the business. The family may also use the liquidated assets to pay off the cost of funeral expenses. The assets and liabilities of the business may be passed on to a person determined by a written will. Because the assets of a sole proprietorship may lose value after the proprietor's death, the amount generated after liquidation may not cover all business and personal expenses and debts of the deceased.


  1. When beneficiaries inherit assets of the deceased, they are liable for estate and inheritance tax. These taxes on the assets are typically high and may have a negative impact on the business. This means with an inheritance and estate tax up to 35 percent, the business essentially loses 35 percent of what it is worth. As a result of taxation, the business and its assets may then turn out to be a liability rather than a source of income for the family.