Tag: real estate

Fast Answer: If a Florida business owner dies or becomes incapacitated, what happens to the business depends on the business structure, governing documents, estate plan, and applicable Florida law. Ownership may pass to heirs or other beneficiaries, while management authority may remain with other owners or designated decision makers. A business succession plan can establish what happens to the owner’s interest and who can manage the company when the owner can no longer do so.

Business owners spend years building companies that depend on their judgment, relationships, skills, and decisions.

Then life does what life does.

An owner dies. An illness leaves someone unable to work. A business partner suddenly has to deal with an estate. Family members inherit an ownership interest without knowing how the company operates. Employees are left wondering who can sign contracts, access accounts, or make decisions.

These situations raise two separate questions:

Who owns the business interest, and who has authority to run the business?

Those answers do not always point to the same person.

A Florida business succession plan addresses what happens to ownership and management when an owner dies, becomes incapacitated, retires, or otherwise can no longer participate in the company. Depending on the business, that plan may involve an operating agreement, shareholder agreement, buy-sell agreement, trust, power of attorney, estate plan, or several of these documents working together.

---

What Happens to a Business When the Owner Dies?

The answer depends heavily on the type of business and its governing documents.

If a person owns an interest in a Florida LLC, the ownership interest does not necessarily give the person’s heirs an automatic right to step into the owner’s management role.

Florida’s LLC statute distinguishes between a transferable interest and the rights of a member. A transferee generally receives the economic rights associated with the transferred interest but does not automatically acquire the right to participate in management or access company records.

Death can also cause an individual to cease being a member under Florida’s LLC statute, while the consequences of that dissociation depend on the governing law and the company’s operating agreement.

That can create a surprisingly awkward situation.

Imagine a company owned by two siblings. One dies and leaves everything to a spouse who has never worked in the business. The spouse may inherit an economic interest, while the surviving sibling continues operating the company.

Now everyone has a legitimate interest in what happens next.

The spouse wants to know what the inherited interest is worth. The surviving sibling wants to know who has authority to make business decisions. The company needs to continue operating.

An operating agreement or buy-sell arrangement can address those questions before anyone has to improvise.

---

What Happens If a Business Owner Becomes Incapacitated?

Death and incapacity create different legal problems.

When an owner dies, the estate and succession process becomes relevant. When an owner becomes incapacitated, the business may need someone with legal authority to act while the owner is still alive.

Florida’s Power of Attorney Act defines incapacity in part as the inability to take actions necessary to obtain, administer, and dispose of property, including business property.

A properly drafted durable power of attorney can allow an agent to continue exercising specified authority despite the principal’s later incapacity.

The document needs to grant the authority actually required. Florida law provides that an agent may exercise authority specifically granted in the power of attorney, and certain powers require specific enumeration.

That makes the details important for a business owner.

A document authorizing someone to handle personal banking does not necessarily answer every question involving ownership interests, company management, securities, contracts, or other business decisions.

A succession plan should therefore consider incapacity separately from death.

---

Does a Will Control My Business After I Die?

A will can determine who receives assets that pass through the estate, including an ownership interest in a business.

But the will does not automatically rewrite the company’s governing documents.

An LLC’s operating agreement governs important aspects of the company’s internal affairs. Florida law expressly provides that an LLC is bound by its operating agreement and that a person who becomes a member is generally bound by it as well.

Corporations have their own governing documents and statutory rules concerning shareholders, shares, directors, officers, and shareholder agreements. Florida’s Business Corporation Act separately addresses restrictions on share transfers and shareholder agreements.

This creates an important planning issue:

---

Your estate plan and your business documents need to work together.

Suppose a business owner leaves the company to three children in equal shares. The will may produce three equal ownership interests.

But what happens if one child wants to run the company, another wants to sell, and the third wants cash rather than an operating role?

The will alone may not provide a practical answer.

---

Can a Trust Own a Business Interest?

Yes. A trust can hold certain business interests, and trusts can be part of a broader estate and succession plan.

That does not mean putting an LLC interest into a trust automatically solves the succession problem.

The trust document has to address who controls the trust, who benefits from it, and what the trustee can do with the property. Florida law gives trustees significant powers, including powers to acquire and sell trust property, subject to the terms of the trust and the trustee’s fiduciary duties.

The business documents also have to be considered.

For example, an LLC operating agreement may contain restrictions or requirements concerning transfers, membership, voting, management, or the admission of new members.

A trust can therefore be one component of a succession plan rather than a substitute for the entire plan.

---

What Is a Buy-Sell Agreement?

A buy-sell agreement establishes rules for what happens to an owner’s business interest when a specified event occurs.

Depending on how it is drafted, the triggering event might include death, disability, retirement, divorce, termination of employment, or another circumstance affecting ownership.

A typical arrangement might give the company or the remaining owners the right, or sometimes the obligation, to purchase the departing owner’s interest.

The agreement can also address valuation and payment terms.

Consider the three-sibling example again.

If one sibling dies, the agreement might provide a mechanism for the surviving owners to purchase that sibling’s interest at a defined valuation methodology. The estate receives value, while the remaining owners retain control of the company.

That is a very different outcome from leaving three people to negotiate ownership after the death.

The details matter. Valuation formulas that seemed reasonable five years ago may produce strange results after the business has grown substantially. Funding also needs consideration. A purchase obligation is useful only if the parties have a realistic way to pay for it.

---

What Happens to a Family Business When the Owner Dies?

Family businesses create another succession problem: inheritance and management can point in different directions.

A child may inherit an ownership interest without having any experience running the company. Another child may have spent twenty years working in the business and expect to continue operating it.

Those interests can coexist, but the documents need to account for them.

A useful succession plan can address:

• Who can own the business
• Who can manage the business
• Whether family members can transfer their interests
• Whether existing owners have purchase rights
• How an owner’s interest will be valued
• How a purchase will be funded
• What happens if an heir does not want to participate in the company
• What happens if the owners disagree
• What happens if an owner becomes incapacitated

---

As Alan Reinfeld puts it:

“A 50/50 split sounds wonderfully democratic until two people have a 50/50 disagreement.”

That problem becomes considerably harder when one of the two owners has died and the surviving owner is now dealing with the deceased owner’s estate.

---

Who Runs the Business While the Estate Is Being Settled?

This is one of the practical questions business owners often overlook.

A business does not necessarily stop operating because its owner has died. Employees still need to be paid. Customers still expect service. Contracts still need attention. Taxes and other obligations continue.

But the legal authority to make decisions can become complicated depending on the company’s structure and the owner’s role.

An LLC may be member-managed or manager-managed. Florida law provides different management structures, with management generally vested in the members of a member-managed LLC and in the managers of a manager-managed LLC.

That means the succession plan should account for management authority, not merely inheritance.

The same principle applies to corporations, partnerships, and other business structures.

The person who inherits the business and the person who runs the business do not necessarily have to be the same person.

---

What Documents Should a Business Owner Have in Place?

There is no universal package that works for every business.

Depending on the circumstances, a Florida business owner may need to coordinate several documents:

Operating agreement

For an LLC, the operating agreement can establish rules concerning ownership, management, voting, transfers, and other internal matters. Florida law gives operating agreements an important role in governing the company’s affairs.

Shareholder agreement

Corporations may use shareholder agreements to establish rules concerning ownership and the relationship among shareholders.

Buy-sell agreement

This can establish what happens when an owner dies, becomes disabled, retires, or experiences another specified triggering event.

Will

A will can address assets that pass through the estate, including business interests that are part of the probate estate.

Trust

A trust may hold business interests and establish rules for their administration and eventual distribution.

Durable power of attorney

A properly drafted durable power of attorney can address authority during incapacity, subject to the powers actually granted in the document.

These documents should be coordinated.

A business succession plan can become surprisingly fragile when the operating agreement says one thing, the buy-sell agreement says another, and the estate plan was drafted years earlier without considering the company.

---

What If the Business Has Multiple Owners?

Multiple-owner businesses need succession planning even when everyone is getting along.

Especially when everyone is getting along.

The difficult provisions are often the ones people are least interested in discussing when the company is doing well.

• What happens if one owner dies?
• What if an owner’s spouse inherits the interest?
• What if one owner wants out?
• What if an owner becomes unable to work?
• What if two owners disagree about selling the company?
• What if the business becomes significantly more valuable?

These are business questions, but they also become estate-planning questions when ownership changes because of death or incapacity.

---

Stuart Reinfeld puts it this way:

“Most business partnerships start with optimism. The operating agreement is where you discuss what happens when optimism takes a day off.”

That conversation can be uncomfortable. It is also considerably easier to have while everyone is alive, healthy, and still speaking to one another.

---

How Do You Plan for Business Succession in Florida?

Start by identifying the business interest itself.

Is the company an LLC, corporation, partnership, or another structure? Who owns it? Who manages it? What does the governing agreement say about transfers and management?

Then consider the two events that tend to create the biggest disruption: death and incapacity.

For death, determine how ownership should transfer and whether the remaining owners should have a purchase right or obligation.

For incapacity, determine who can exercise the necessary authority while the owner is alive.

Then coordinate those decisions with the owner’s estate plan.

The goal is not necessarily to create a complicated stack of documents. It is to make sure the documents already governing the business and the documents governing the owner’s estate do not contradict one another.

---

Business Succession Planning in Coral Springs and Broward County

For business owners in Coral Springs, succession planning can involve both business law and estate planning.

A company may have an operating agreement, shareholder agreement, employment arrangements, commercial contracts, and financial obligations. The owner may separately have a will, trust, power of attorney, and other estate-planning documents.

Those pieces should be reviewed together when ownership of the business represents a significant part of the owner’s estate.

The same considerations apply throughout Broward County and South Florida.

A succession plan drafted when a company has two owners and $200,000 in annual revenue may need substantial revision after the company has ten employees, several million dollars in revenue, and three generations of family members involved.

---

Frequently Asked Questions

What happens to my LLC if I die in Florida?

• The result depends on the LLC’s operating agreement, ownership structure, and applicable Florida law. Death can cause an individual member to dissociate, while the economic interest and management rights associated with the business interest can be treated differently.

Can my children inherit my business?

• They may inherit a business interest depending on the business structure, estate plan, governing agreements, and applicable law. Inheriting an ownership interest does not necessarily mean inheriting the right to manage the company.

Does a will determine who runs my business?

• Not necessarily. A will can address ownership passing through the estate, but management may be governed by the company’s operating agreement, corporate documents, or other applicable rules.

Can a trust own my LLC interest?

• A trust can hold certain business interests, but the trust terms and the company’s governing documents need to be considered together.

What happens to my business if I become incapacitated?

• The answer depends on the business structure and the authority available to someone else to act for you. A properly drafted durable power of attorney can provide authority that continues despite later incapacity, subject to its terms and Florida law.

Do I need a buy-sell agreement if I have business partners?

• It can be useful when the owners need predetermined rules for what happens after death, disability, retirement, or another triggering event. Whether one is appropriate depends on the business and the owners’ objectives.

---

Planning for the Future of a Florida Business

A business succession plan answers a very practical question:

What happens to the company when the person who currently controls it cannot continue doing so?

For some owners, the answer may involve an operating agreement. For others, it may require a buy-sell agreement, trust, durable power of attorney, revised estate plan, or several documents working together.

The important part is making those decisions while the owner can still make them.

Reinfeld & Cabrera P.A. assists business owners in Coral Springs, Broward County, and throughout South Florida with business planning, estate planning, and legal matters involving ownership and succession. Contact the firm to discuss how your business interests fit into your broader estate and succession plan.

This article provides general information about Florida law and is not a substitute for legal advice concerning a particular business or estate.