What happens when a business owner dies? Is it possible to salvage the business on behalf of the heirs? What about the intent of the decedent to convert the form of the business to ensure that it continues; can the personal representative carry out the decedent’s wishes?

California Law on Running Businesses

A personal representative may only continue a business for six months absent a court order. (Prob. Code, §§ 9760 & 10534.) If the business has partners or other management, (i.e. not a sole proprietorship), then the other business managers may continue the business operations normally without assistance from the personal representative. (Prob. Code, § 9760.) This rule does not apply to general or limited partnerships with other concerns. (Prob. Code, §§ 9760–9763.)

If the personal representative has full authority, the personal representative may continue operating the business for six months without a court order, but the personal representative must give a Notice of Proposed Action announcing their intention to continue the business. (Prob. Code, § 10534.)

Shortly after Bing Crosby’s death (aka Harry Lillis Crosby), his executor used his power under Probate Code section 9760 to create a holding company for all of Bing Crosby’s intellectual property rights and interests in the music, movies, and other entertainment that Bing had created. (HLC Properties, Ltd. v. Superior Court (2005) 35 Cal.4th 54, dicta.)

Interpretation

Typically, a sole proprietorship dies with the owner. However, the personal representative can use Probate Code section 9760 to take necessary steps to convert the business from a sole proprietorship to an alternative form. Because of the oversight required in partnerships, the best action might be to form an LLC or a corporation. (Consult an attorney regarding your specific situation.)

If the heirs do not wish to keep the business going, the personal representative can use his or her control over the business to wrap up affairs and collect any accounts receivable.

Questions Answered

Is it possible to salvage a sole proprietorship for the benefit of the heirs?

It is possible to salvage the business on behalf of the heirs, but it depends on the circumstances. The personal representative, responsible for managing the decedent’s estate, may have the authority to continue the business for up to six months without a court order.

Can the personal representative carry out the decedent’s wishes to convert the form of the business to ensure that it continues?

Yes, the personal representative can carry out the decedent’s wishes to convert the form of the business to ensure that it continues. Under Probate Code section 9760, the personal representative can take the necessary steps to convert the business from a sole proprietorship to an alternative form, such as an LLC or a corporation.

Overall, it’s important for anyone who needs to plan for the continuation of a business to consult with an experienced attorney, such as Coleman & Horowitt, LLP, prior to the death of the business owner. If that moment has passed, the personal representative has a limited window in which they can take corrective action.

Conclusion

Any person who needs to plan for the continuation of a business should consult with an experienced attorney such as Coleman & Horowitt, LLP, prior to the death of the business owner. If that moment has passed, then the personal representative has a limited window in which they can take corrective action.

Coleman & Horowitt, LLP, serves clients in several California counties, which specifically includes but is not limited to Kern County, California. It has offices at 17th Street and D Street in Bakersfield. Call 661-325-1300 to schedule a consultation.