When a Business Owner Dies

The executor discovered the problem on Monday morning.

Employees were waiting to be paid. Customers were expecting orders. A supplier had stopped delivery because an invoice was overdue, and the business bank account required an authorised signatory.

The deceased had described the operation simply as “my business.”

Legally, that description was not enough.

Was it a sole-trader business owned personally by the deceased? Was it a partnership that may have dissolved at death? Was it operated through a company whose shares belonged to the estate but whose assets still belonged to the company? Did a shareholder agreement require the deceased’s shares to be sold to the surviving owners?

The answers determine what the executor can control, what can be transferred and whether the business should continue operating.

Business estates are especially time-sensitive. A house can often remain secured while probate is obtained. A trading business may lose customers, staff, contracts and goodwill within days if nobody has authority to make decisions.

The executor’s first task is not to sell the business or promise it to a beneficiary. It is to identify the legal structure and preserve its value without taking unauthorised risks.

## Start With the Business Structure

Different structures create very different estate consequences.

The main possibilities are:

– Sole trader
– Ordinary partnership
– Limited partnership
– Company
– Trust-owned business
– A combination of these structures

A business may also use one structure for trading and another for owning property.

For example:

– A company operates the business.
– A family trust owns the premises.
– The deceased personally owns shares in the company.
– A separate partnership owns equipment leased to the company.

The executor should not treat the entire commercial operation as one estate asset.

Prepare an ownership map showing:

– Who owns the business assets
– Who owes the debts
– Who employs the staff
– Who owns the premises
– Who holds the intellectual property
– Who owns the shares or partnership interest
– Which guarantees were signed personally
– Which contracts contain death provisions

The legal owner of each item determines whether it belongs to the estate.

## Sole Trader: The Business and Owner Are Not Separate

A sole trader operates personally rather than through a separate company.

The business assets and liabilities generally belong to the individual.

This means the estate may include:

– Business bank accounts
– Stock
– Equipment
– Vehicles
– Customer debts
– Intellectual property
– Trading names
– Websites
– Work in progress
– Lease rights
– Supplier debts
– Tax liabilities

The executor must identify and secure these items just as they would identify the deceased’s personal bank accounts and household property.

Unlike a company, the sole-trader business does not continue as a separate legal person after the owner dies. The executor may need to preserve or temporarily operate aspects of the business while deciding whether to sell, complete existing work or close it.

That does not mean the executor should continue trading automatically.

## Can an Executor Continue a Sole-Trader Business?

Temporary continuation may sometimes be necessary to preserve value.

Examples include:

– Completing nearly finished orders
– Collecting outstanding invoices
– Maintaining perishable stock
– Keeping licences or contracts alive
– Retaining essential employees
– Preparing the business for sale
– Preventing customer losses

Before continuing, the executor should examine:

– The will
– The executor’s powers
– Probate status
– Insurance
– Employment obligations
– Health and safety
– Contracts
– Licences
– Cash flow
– Tax
– Personal-liability exposure

Operating a business creates fresh risks. New debts incurred after death may not simply be historic estate debts.

The executor should avoid committing the estate to long-term contracts or speculative expansion without clear authority and a documented commercial reason.

A short preservation period is different from deciding to become the new owner.

## Keep Pre-Death and Post-Death Trading Separate

The executor should establish a clear financial cut-off at the date of death.

Separate:

### Pre-death transactions

These belong to the deceased’s final personal business period.

Examples include:

– Sales completed before death
– Supplier invoices incurred before death
– Employee wages already earned
– Tax obligations from earlier trading

### Post-death transactions

These arise while the executor administers or temporarily continues the business.

Examples include:

– New sales
– New stock purchases
– Post-death employee wages
– New rent and utility charges
– Income collected by the estate

This distinction matters for accounting, tax, creditor claims and evaluating whether continuing the business produced a profit or loss.

Current New Zealand tax guidance confirms that a person administering an estate may need to complete the deceased’s final tax obligations and deal separately with income earned by the estate. An estate earning taxable income may also need to file an estate income tax return. citeturn275640search10turn275640search53

Use separate ledgers and, once authority permits, an appropriate estate bank account.

## Value a Sole-Trader Business Carefully

The value of a sole-trader business may include more than equipment and stock.

Potential components include:

– Goodwill
– Customer relationships
– Brand reputation
– Domain names
– Intellectual property
– Forward orders
– Licences
– Stock
– Debtors
– Plant and equipment
– Lease rights
– Less outstanding liabilities

Goodwill may depend heavily on the deceased’s personal expertise.

A consultancy based entirely on the deceased’s personal reputation may have limited transferable goodwill. A retail operation with staff, systems and repeat customers may continue to hold considerable value.

Do not sell valuable assets casually to relatives or employees without valuation and market testing.

## Selling or Transferring a Sole-Trader Business

A beneficiary does not automatically receive the business merely because the will leaves them “my business.”

The executor must identify what that expression covers and whether the estate can transfer each component.

A transfer may require separate documents for:

– Equipment
– Vehicles
– Stock
– Intellectual property
– Website and domain names
– Lease rights
– Customer contracts
– Employment arrangements
– Licences
– Trading name
– Receivables

Some contracts may require the other party’s consent. Certain licences may be personal and non-transferable.

The executor should also consider whether the beneficiary has the financial and practical ability to continue the operation.

If the beneficiary is to receive the business as an in-specie distribution, obtain a reliable valuation and show the value clearly in the estate accounts.

## Partnerships: Death May Change Everything

An ordinary partnership is not the same as a company.

Partners generally share ownership, profit and responsibility under their partnership agreement and applicable law.

Under the Partnership Law Act 2019, the death of a partner generally dissolves the partnership in relation to all partners unless the partners have agreed otherwise. citeturn275640search3

The phrase “subject to any agreement between the partners” is critical.

A well-drafted partnership agreement may provide that:

– The business continues after a partner’s death
– The surviving partners buy the deceased’s interest
– The estate receives a calculated payment
– The executor cannot enter management
– A valuation formula applies
– Insurance funds the buyout
– Certain assets remain with the continuing business

Without such terms, death may trigger winding up rather than seamless continuation.

## Review the Partnership Agreement Immediately

The executor should obtain:

– The signed partnership agreement
– Every amendment
– Financial statements
– Current partner accounts
– Loan accounts
– Asset records
– Insurance policies
– Valuation clauses
– Recent partner resolutions
– Tax records
– Details of drawings and capital contributions

The agreement may determine whether the executor is entitled to:

– A share of partnership assets
– The deceased’s capital account
– Undistributed profits
– A buyout price
– Interest pending payment
– Access to accounts
– Participation in winding up

The estate does not automatically step into the deceased’s management role.

The executor may have financial rights without gaining the right to run the partnership.

## Partnership Debts and New Trading

The deceased’s estate may remain responsible for partnership obligations incurred before death, depending on the partnership structure and the applicable facts.

The estate is not generally liable merely because surviving partners incur new debts after the date of death. The Partnership Law Act addresses the position of a deceased partner’s estate in relation to later partnership liabilities. citeturn275640search13

The executor should notify relevant parties of the death and confirm whether the business is:

– Being wound up
– Continuing under the agreement
– Operating through a newly constituted partnership
– Buying the estate’s interest

Do not allow the deceased’s name to remain associated with new trading without clarification. Continuing use of stationery, guarantees or account authorities may create confusion about liability.

## Partnership Valuation Can Be Contentious

The partnership agreement may value the deceased’s interest using:

– Book value
– Market value
– A multiple of earnings
– An independent valuation
– A stated formula
– The last annual accounts
– A valuation excluding goodwill
– Insurance proceeds

A formula that appears simple can produce a very different result from open-market value.

The executor should examine whether the agreement is legally effective and whether the calculation has been applied correctly.

Request supporting records, including:

– Management accounts
– Stock values
– Debtors and creditors
– Asset valuations
– Tax liabilities
– Partner loan accounts
– Work in progress
– Goodwill assumptions

Where surviving partners control all information, independent accounting advice may be essential.

## Limited Partnerships Need Separate Analysis

A limited partnership is a registered legal structure governed by its own legislation and partnership agreement.

It includes general and limited partners with different roles and potential liabilities.

The executor should not apply ordinary-partnership assumptions automatically.

Review:

– The limited partnership agreement
– Register information
– The deceased’s status
– Succession provisions
– Capital account
– Transfer restrictions
– Management rights
– Buyout clauses
– General-partner arrangements

If the deceased was the sole general partner or held a critical governance role, urgent steps may be needed to preserve the entity’s ability to operate.

## Companies Continue After a Shareholder Dies

A company is a separate legal person.

The death of a shareholder does not ordinarily cause the company itself to end.

The company continues to own:

– Its bank accounts
– Vehicles
– Stock
– Land
– Equipment
– Customer debts
– Intellectual property
– Business contracts

The deceased’s estate owns the deceased’s shares, not the company’s underlying assets.

This is one of the most important business-estate distinctions.

An executor cannot withdraw company money and place it in the estate account merely because the deceased owned every share.

The company must continue operating through its directors and governance processes.

## Shares Become Estate Property

Shares owned personally by the deceased generally form part of the estate.

The Companies Act provides that a personal representative of a deceased shareholder may transfer shares even if the representative is not yet entered as a shareholder. Share transfers remain subject to limitations or restrictions in the company constitution. citeturn275640search1

The executor should obtain:

– Company constitution
– Share register
– Share certificates, if any
– Shareholder agreement
– Latest annual return
– Financial statements
– Director records
– Loan accounts
– Insurance
– Valuation information

The company’s own share register is fundamental. The Companies Register also records shareholder details through company filings and annual returns, but the company must maintain its internal share register accurately. citeturn275640search6

Do not rely solely on family statements about how many shares the deceased owned.

## Shareholder and Director Are Different Roles

The deceased may have been both sole shareholder and sole director.

These roles must be separated.

### Shareholder

The shareholder owns shares and exercises shareholder rights.

### Director

The director manages or supervises the company’s business and affairs.

The executor may control the estate’s shareholder rights once properly authorised, but does not automatically become a director.

A new director may need to be appointed under:

– The Companies Act
– The company constitution
– The shareholder agreement
– A valid shareholder resolution
– Another court or statutory process if ordinary appointment is impossible

Until a valid director is appointed, the company may struggle to:

– Operate bank accounts
– Pay employees
– Sign contracts
– File documents
– Approve invoices
– Continue trading

This can make probate and governance action urgent.

## What if the Deceased Was the Sole Director?

A sole-director death can create immediate operational paralysis.

The executor should investigate:

– Whether another director remains on the register
– Whether the constitution allows shareholder appointment
– Whether the estate can exercise shareholder voting rights
– Whether probate is required before the company accepts those rights
– Whether an alternate or reserve director exists
– Whether urgent court relief is needed
– What payments and filings are approaching

Do not allow an employee or relative to act as a director informally.

A person making company decisions without valid appointment may expose themselves and the company to risk.

The company’s advisers, bank and records should be contacted promptly.

## Shareholder Agreements Can Override Expectations

A shareholder agreement may contain detailed death provisions.

These can include:

– Mandatory sale of the deceased’s shares
– Options for surviving shareholders
– Rights of first refusal
– Valuation formulas
– Insurance-funded buyouts
– Payment by instalments
– Restrictions on transferring shares to beneficiaries
– Compulsory transfer events
– Deadlines for serving notices
– Dispute-resolution clauses

The executor must review the agreement before promising the shares to a beneficiary.

A will may leave “all my company shares” to a child, but the shareholder agreement may require the estate to sell those shares to the surviving owners.

In that situation, the beneficiary may receive the sale proceeds rather than the shares themselves, depending on the will and agreement.

Contractual obligations affecting the shares do not disappear at death.

## Check the Company Constitution Too

The constitution may restrict share transfers or create procedural requirements.

The Companies Act states that shares are transferable subject to limitations or restrictions in the constitution. citeturn275640search20

Possible restrictions include:

– Director approval
– Pre-emption rights
– Transfer notices
– Valuation procedures
– Restrictions on particular transferees
– Compulsory transfer after death

The executor should compare the shareholder agreement and constitution carefully.

They may overlap, supplement one another or appear inconsistent.

Do not register a beneficiary as shareholder before confirming that every restriction has been satisfied.

## Value the Shares, Not the Company Assets Individually

If the estate owns shares in a company, value the shareholding.

Do not simply add up company assets and call the total an estate asset.

The share value may reflect:

– Company assets
– Liabilities
– Profitability
– Cash flow
– Minority discounts
– Control rights
– Share classes
– Transfer restrictions
– Key-person dependence
– Tax obligations
– Customer concentration
– Shareholder loans
– Goodwill

A 25 percent minority shareholding may be worth less than 25 percent of the company’s net asset value because it does not provide control.

Conversely, a controlling shareholding may have strategic value.

Use an independent business or share valuation where the amount is material or a related party intends to buy.

## Shareholder Loans Are Separate Assets or Liabilities

The deceased may have lent money to the company or borrowed from it.

The estate may therefore hold:

– Shares
– A shareholder current account
– Unpaid salary
– Declared dividends
– Director fees
– Reimbursable expenses

Alternatively, the deceased may owe money to the company.

Do not merge the loan account into the share valuation without understanding the accounting treatment.

Obtain:

– Loan agreements
– Company ledgers
– Financial statements
– Interest records
– Repayment terms
– Security documents
– Board resolutions

A company owing $300,000 to the deceased creates a substantial estate receivable separate from the shares.

## Dividends and Company Income

Company income belongs to the company.

The estate is entitled only to amounts legally payable to it, such as:

– Declared dividends
– Shareholder-loan repayments
– Salary already owed
– Director fees already payable
– Share-sale proceeds

The executor cannot treat company revenue as estate income merely because the deceased was the sole shareholder.

A dividend generally requires the correct company decision and compliance with solvency requirements.

Directors must make that decision for the company. The executor should not withdraw funds and label them a dividend afterward.

## Personal Guarantees Can Change the Estate Risk

Business lending often includes personal guarantees.

The deceased may have guaranteed:

– Company overdrafts
– Equipment finance
– Premises leases
– Supplier accounts
– Partnership debts
– Tax arrangements

The executor should locate every guarantee and determine:

– Whether it survives death
– The maximum amount
– Whether a default exists
– What security supports the debt
– Whether the lender has issued a demand
– Whether the estate has rights against the business
– Whether replacement security can be arranged

Do not distribute the estate while significant guarantee exposure remains unresolved.

A company can remain solvent while the estate still faces risk under a personal guarantee, particularly if the business later fails.

## Employment Obligations Continue With the Correct Employer

The executor must identify who employs the staff.

If the deceased was a sole trader, employment obligations may fall within the estate and the future of the employment may require urgent attention.

If a company is the employer, the company continues to hold responsibilities for:

– Wages
– Leave
– Tax deductions
– Employment agreements
– Health and safety
– Restructuring or termination processes

The executor does not personally become the employer merely by administering the shares.

Do not dismiss staff informally at a family meeting.

Employment decisions should be made by the legally responsible employer through valid governance.

## Contracts May Contain Death or Change-of-Control Clauses

Review major contracts for provisions triggered by:

– Death
– Incapacity
– Change of ownership
– Change of control
– Director departure
– Partnership dissolution
– Loss of a key person
– Transfer of licences
– Insolvency

Relevant contracts may include:

– Commercial leases
– Supplier agreements
– Distribution rights
– Franchising arrangements
– Customer agreements
– Finance documents
– Government licences
– Professional registrations
– Insurance policies

A company may continue legally but lose a crucial contract if the deceased’s death triggers termination rights.

The executor should notify parties carefully. Premature or inaccurate statements can cause avoidable termination.

## Insurance May Fund a Buyout

Some businesses carry life or succession insurance designed to fund the purchase of a deceased owner’s interest.

The policy may be owned by:

– The company
– Other shareholders
– The deceased
– A trust
– The partnership

The payment recipient and contractual purpose matter.

Insurance proceeds do not automatically belong to the estate.

The executor should check:

– Policy owner
– Insured person
– Beneficiary or payment recipient
– Buy-sell agreement
– Valuation method
– Tax treatment
– Whether proceeds must be applied to purchase shares

The insurance and shareholder agreement should be read together.

A large policy payment may be intended to allow surviving owners to buy the estate’s shares rather than provide an additional windfall to either side.

## Decide Whether to Sell, Transfer or Retain

Once the structure and restrictions are clear, the executor may need to choose among:

– Selling the sole-trader business
– Closing and realising its assets
– Transferring it to a beneficiary
– Receiving a partnership buyout
– Winding up a partnership
– Selling company shares
– Transferring shares to beneficiaries
– Retaining shares temporarily
– Participating in a compulsory buy-sell arrangement

Relevant factors include:

– The will
– Shareholder or partnership agreements
– Estate cash requirements
– Tax
– Business stability
– Valuation
– Beneficiary skills and preferences
– Creditor exposure
– Market conditions
– Executor powers
– Claim risks

Do not retain a risky business indefinitely merely because a beneficiary hopes its value will improve.

Likewise, do not conduct a distressed sale without considering whether short-term preservation could protect significantly more value.

## Manage Conflicts Openly

The executor may be:

– A beneficiary
– A surviving shareholder
– A partner
– A director
– A business employee
– A potential buyer

These positions create conflicts.

For example, a surviving shareholder who is also executor may prefer a low share valuation when buying from the estate. As executor, the same person must seek proper value for the estate.

Manage the conflict through:

– Full disclosure
– Independent valuation
– Separate legal advice
– Co-executor oversight
– Independent negotiation
– Beneficiary information
– Court directions where necessary

The executor should not sign both sides of a transaction without a clear legal basis and safeguards.

## Keep Business and Estate Money Separate

Use separate records for:

– Estate funds
– Company funds
– Partnership funds
– Trust funds
– Sole-trader post-death trading

The executor should never transfer company money into the estate account simply to make administration easier.

Every legitimate movement should be identified correctly, such as:

– Dividend
– Loan repayment
– Share-sale proceeds
– Expense reimbursement
– Business purchase price
– Partnership settlement

Poor labelling creates tax, creditor and beneficiary problems.

## Build a Business Succession File

A strong executor file should include:

– Legal structure chart
– Will
– Probate or administration grant
– Partnership agreement
– Shareholder agreement
– Company constitution
– Share register
– Director records
– Financial statements
– Tax records
– Valuation
– Insurance
– Contracts
– Guarantees
– Employment information
– Loan accounts
– Sale or transfer documents
– Decision log
– Beneficiary updates

Record urgent decisions and why they were necessary.

Business estates are judged not only by the final sale price but by whether the executor took informed steps before value disappeared.

## A Practical First-30-Days Plan

### First 48 hours

– Secure premises, devices and records.
– Identify who can operate bank accounts.
– Confirm wages and urgent payments.
– Protect stock and customer property.
– Notify insurers.

### First week

– Determine the legal structure.
– Locate governing agreements.
– Contact co-owners and advisers.
– Identify directors, partners and shareholders.
– Review cash flow and critical contracts.
– Search for personal guarantees.

### Weeks two to four

– Obtain preliminary valuations.
– Separate estate and business accounting.
– Decide whether temporary trading is justified.
– Address governance vacancies.
– Review sale, buyout or transfer clauses.
– Communicate a realistic plan to beneficiaries.

A business owner’s death does not create one universal transfer process.

A sole-trader business may fall directly into the estate. A partnership may dissolve or trigger a buyout. A company continues independently while the estate deals with shares. A shareholder agreement may determine the outcome before the executor ever reaches the will’s gift clause.

The executor who identifies the structure early can preserve value. The executor who treats every business as personal property may accidentally interfere with an entity they do not own.

## Frequently Asked Questions

### 1. What happens to a sole-trader business when the owner dies?

The business assets and liabilities generally form part of the owner’s estate. The executor may need to preserve, sell, transfer or wind down the operation, subject to the will, contracts, tax and personal-liability risks.

### 2. Does a partnership automatically end when a partner dies?

An ordinary partnership is generally dissolved by a partner’s death unless the partners agreed otherwise. A partnership agreement may allow continuation and require the estate’s interest to be purchased.

### 3. Does a company close when its sole shareholder dies?

No. A company is a separate legal person and continues to exist. The deceased’s shares become estate property, while the company retains ownership of its own assets and liabilities.

### 4. Does the executor automatically become a company director?

No. Executor authority over estate shares does not automatically create a director appointment. A new director must be appointed through the company’s lawful governance process.

### 5. Can a will transfer shares directly to a beneficiary?

Possibly, but the transfer remains subject to the company constitution, shareholder agreement, buy-sell obligations and any restrictions on share transfers.

### 6. What happens if a shareholder agreement requires the shares to be sold?

The executor will generally need to follow the valid contractual process. The beneficiary named in the will may receive the resulting proceeds rather than the shares themselves, depending on the will’s wording.

### 7. Are company bank accounts estate assets?

No. Company accounts belong to the company. The estate may own shares, shareholder loans, declared dividends or other amounts owed by the company, but it does not own the company’s cash directly.

### 8. Should the executor continue operating the business?

Only where continuation is legally authorised, commercially justified and properly managed. The executor should examine cash flow, insurance, contracts, employee obligations, tax and liability before allowing further trading.