Talking about death is never easy. But as Benjamin Franklin once stated: “In this world nothing can be said to be certain, except death and taxes’’.

For business owners who work hard to ensure that their business is a success and that it prospers, it is important to ensure and understand what will happen to their business in the event of their death. It is therefore of the utmost importance to take precautionary measures to ensure that your business is in a position to continue operating in and efficient manner in the event of you passing away.

Different business structures such as sole proprietorships (being one man businesses), partnerships and private companies, each has its own estate planning challenges that needs to be managed.

It is advisable that sole proprietorships employ or train a family member or trustworthy and suitably qualified employee while you are still alive, who can take over from you in the event of your death, and or disability. Remember that a sole proprietorship is not a separate legal person, consequently, various practical difficulties may arise in the event of your death, for example your, and accordingly the businesses’ bank accounts will be frozen when you pass away and their will accordingly be a period of time during which it will be difficult to pay essential business expenses, even if there is sufficient funds in available for same. The process of appointing the Executor of your estate may take some time, and the period between your estate being reported at the Master’s office and the Master issuing Letters of Executorship is thus a very uncertain time. It is accordingly advisable to ensure that there are practical measures in place to allow the continued operation of your business, for example by ensuring that there is cash available in the business for situations like this. Another possibility to consider is converting your business from a sole proprietorship to a business structure with separate legal personality such as a private company which will be able to continue after you pass away.

The Administration of Estates Act 66 of 1965 makes provision for the appointment of an interim Curator from the time of your death until an Executor is appointed. Such Curator, if specially authorised by the Master to carry on any business or undertaking of the deceased, may however still not, without such special authority by the Master, purchase any goods which he or she may require for the business or undertaking otherwise than from available cash and out of the profits of that business undertaking. This interim Curator may therefore assist but as he or she is not allowed to enter into credit agreements, cash flow may become a difficulty. Also bear in mind that in the event of the Executor being appointed eventually, such Executor will also not be allowed to enter into credit transactions on behalf of the deceased estate.

A partnership is a business with 2-20 partners. In the event of you (or for that matter one of your partners passing away) the partnership will come to an end and practical arrangements will need to be made regarding the continued operation of the business. Consider the fact that your partners may not wish to do business with your heirs, and as such that it may be necessary to agree in advance that your share in the partnership will be bought out. Alternatively if you wish to ensure the continued involvement of your heir in the business it is advisable to agree this in advance with your other partners. It is accordingly recommended that you ensure that you and your partners have an efficient Partnership Agreement in place that make provision for the unfortunate event of one of you passing away.

Our next newsletter will look at Close Corporations and Private companies.