Operating or winding up a business during probate

If you are an executor to someone who owned a business, it is vital to understand what can and cannot be done to ensure compliance with legal requirements and to protect the business’s value after the owner has died. Engaging a solicitor promptly will make navigating this complex process much smoother, ensuring that the business operates or winds up effectively and in line with the deceased’s wishes.

‘Administering an estate is always a challenging process, but when a business is involved, the complexities multiply,’ explains Head of Private Client, Aaron Spencer. ‘Without the right legal guidance, executors and families may struggle to navigate business operations, tax liabilities, and succession planning. Seeking expert advice early can help protect the business’s value and ensure a smooth transition.’

What happens to a business during probate?

When a business owner dies, their share of the business ordinarily forms part of their estate and must be administered in accordance with their will or the rules of intestacy. If the business is a sole proprietorship, it may cease trading immediately unless arrangements are in place for its continuation. For partnerships and limited companies, succession planning, shareholder agreements, and company articles will dictate what happens next.

What happens to a business during the probate process will depend on its structure:

• Sole proprietorship: a sole trader’s business ceases to exist upon death. The estate must decide whether to sell the assets or wind it up. If continuity is desired, new ownership arrangements must be made.
• Partnerships: if the deceased was in a partnership or limited liability partnership (LLP), the partnership agreement will dictate what happens next. Some agreements allow for business continuity, while others may require dissolution.
• Limited companies: a limited company has a separate legal identity and can continue operating. The deceased’s shares in the company form part of their estate and will be passed on according to their will or intestacy rules.

Executors or administrators must assess the business’s financial position carefully to determine its ongoing viability. Obtaining professional advice will be essential to ensure that all aspects of the business’s overall financial position are thoroughly evaluated.

In addition, it is necessary to engage accountants promptly to value the business for inheritance tax purposes – especially given the strict deadlines for submitting documents to HMRC. The possibility of obtaining business property relief (BPR) should be considered and, if the business qualifies, appropriate steps must be taken to apply for this relief on the relevant inheritance tax forms, potentially reducing the estate’s overall tax burden.

Where necessary, we will liaise with accountants and tax advisors to ensure financial and tax matters are handled effectively and in compliance with legal requirements.

Operating a business during probate

In many cases, a business can continue to operate during probate, but this depends on the business structure and the authority given to executors or surviving partners. Executors may need to:

• secure clear authority to run the business; either as provided in the will or through an agreement with the beneficiaries. Failure to do so may lead to complications, including potential personal repercussions against the executors if actions are later challenged;
• manage operational aspects: oversee payroll, contracts, and supplier relationships to maintain operational stability. Effective management helps avoid financial losses or contractual disputes;
• address tax implications: ensure compliance with relevant business legislation and tax requirements. Lapses in this area could result in penalties or additional liabilities; and
• engage professional advisors: work with accountants, legal professionals, and other advisors to maintain the business’s value until probate is granted and ownership is transferred. This not only helps secure the estate’s interests but also reduces the risk of personal liability by ensuring all actions are legally sound.

Failing to take these appropriate steps can result in financial loss, contractual breaches, or disputes among beneficiaries. Additionally, if the business has outstanding debts, creditors may take action, potentially holding executors personally liable for any mismanagement, thereby adding further risk, complexity and costs to the probate process.

Winding up a business during probate

If the deceased’s wishes or its financial circumstances dictate that the business should be wound up, the executors will need to:

• settle outstanding debts and liabilities;
• inform employees and comply with employment law obligations, including redundancy rights;
• liquidate assets and distribute proceeds to beneficiaries; and
• deregister the business with appropriate authorities and regulatory bodies.

This process must be handled carefully to avoid legal claims, tax penalties, or unnecessary financial losses. Additionally, if the business was a partnership, LLP or limited company, proper dissolution procedures must be followed to ensure compliance with legal requirements.

How we can help

Our expert solicitors can:

• advise on business continuity and succession planning;
• assist executors in obtaining the necessary legal authority;
• navigate tax and regulatory obligations to protect business value;
• facilitate the smooth transition, sale, or closure of the business; and
• work alongside accountants and financial advisors to ensure proper tax planning and compliance.

For expert advice on handling a business during probate, contact Aaron Spencer on 01227 763939.

Please note: This article is for general information only and does not constitute legal or professional advice.