Till death us do part


Bob has been running a DIY shop for over five years. After years of 25 hour days and never having a weekend off, he has decided that he can finally leave the business in the care of his staff and take his family on holiday. On the way to the travel agent to pay for the tickets, Bob is run over when a bus‘s brakes fail. Bob does not have life insurance or a will.

According to 2015 Life Insurance Statistics and Facts, 4 out of every 10 people do not own a life insurance policy. This figure drops to less than 30% when applied to small business owners who have specifically insured their life to protect the business. When you consider that most people are battling to pay monthly expenses, life insurance can be seen as a luxury, but… what happens when a sole proprietor dies?

The technical answer is that the business dies too.

The business cannot continue to exist in its current form because it has no separate legal identity. It must be wound down or transferred to another person, according to the will. If the sole proprietor dies without having made provision for the business in their will or without an insurance policy, then this could be disastrous for their family, staff and business associates. Business owners have plans for everything from start-up to sales. Surely, succession planning is just as important?

Because the business and the sole proprietor are essentially the same legal person, the business is treated as simply being a part of the deceased’s estate. In the absence of a will, any assets will be liquidated to pay off any personal debts and the balance will be distributed according to intestate law.

There will be no continuing income from the business while it is being wound up. To add to the potential legal and financial woes of the family, the sale of the business assets may incur significant inheritance tax or conversely, because the assets will be disposed of in a ‘forced sale’ situation, they may realize less than the actual worth.

However, if the sole proprietor made provision in the will for a representative to care for the business, then it may continue to operate. Additionally, the heirs may choose to continue the business, either as a new sole proprietorship or as some other business form. The heirs will remain liable for any claims that arose while the sole proprietor was still alive, whether or not these claims are related to the business or personal. The assets of the business will need to be formally transferred to the new owner/s and all legal documents re-drawn. The sad reality is that while the estate and the business are being processed, the business is likely to lose customers and market share to competitors.

Where a sole proprietor has taken out an adequate life policy, then the heir/s will have the funds to handle all the legal costs, settle debts and effectively re-start the business. A life policy has the advantage of paying out quickly in the event of death.

A sole proprietorship is attractive when someone is starting out with little capital because it is the simplest and cheapest form of business ownership, but it does require careful thought and planning as to how best to grow the business and to protect family and the business’ interests, should the proverbial bus fail to break.

Ask that difficult question: “What if?” “What if I die; what happens to my family, my staff and the business?” Ensure that you choose the right form of business ownership, write a will and ensure against the worst.


Author: Janet Askew


Janet Askew

Janet is a trainer, coach, speaker and writer who is passionate about promoting women in business and SMME development. In addition to her consulting work, she is a director of Essentially Natural and serves on the board of the Wot-If? Trust.





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