What Happens When a Sole Proprietor Dies?

Although establishing a business as a sole proprietorship is simple, the legalities involved in owning one can be complicated, including determining the fate of the enterprise in the event of the owner's death. According to Entrepreneur magazine, it is common for sole proprietorships to lose value after the death of their owners.


The primary effect of the death of a sole proprietor is that the business cannot continue in its existing form. The business must either wind down completely, be transferred to another individual or legal entity pursuant to the last will and testament of the sole proprietor or the assets sold to a third party, according to "Working for Yourself" by Stephen Fishman.


A primary concern of a sole proprietor is ensuring that her family is financially protected if she dies, particularly if she dies prematurely. For this reason, a sole proprietor includes a provision in her will directing the sale of the business or appointing a family member to take over business operations.


A common misconception associated with a sole proprietorship is that this type of business has an independent legal existence, such as that of a corporation, partnership or limited liability company. In fact, the sole proprietorship's existence is completely linked to the individual who created and runs the venture, which means all taxes and debts rest with the owner.


Tax problems can arise when a sole proprietor dies. For example, if the assets of the business pass through a will, estate and inheritance taxes might prove significant. Therefore, estate planning needs to include dealing with a sole proprietor's business and the assets of that enterprise.

Expert Assistance

Preparing for what happens to a business when a sole proprietor dies requires an understanding of business and estate law. Therefore, it is wise to retain an attorney to assist with these types of issues. The American Bar Association maintains resources to assist in finding suitable representation.