Continuity refers to something occurring in an uninterrupted state or on a steady and ongoing basis. Today begins a 3-part series about the importance of business continuity planning. Whether you own 1 rental property, run a small business employing 3 people or have a family farm, it is EXTREMELY important that you not only plan for the distribution of your personal assets but that you plan for the perpetuation of business operations.
A very common small business structure is the single-member LLC. LLCs are commonly used for rental properties or a service business. LLCs offer great liability protection paired with simple management, but their simplicity can often leave problems when an owner becomes incapacitated or passes away.
A properly formed LLC should have an operating agreement that explains what happens, and who is in charge when the owner passes away or becomes disabled and unable to guide business operations. Why? Because business owners owe it to every person affected by their business to have a continuity plan in place. Employees, customers, vendors, and family members are all impacted when the owner of a business is no longer able to oversee daily operations.
It is common for an LLC to have bank accounts titled in the name of the LLC. Often, the single-member (business owner) is the only person with access to the funds in those bank accounts. Unlike an individual checking account, a business account cannot pass upon death through a beneficiary designation. A bank holding these accounts will treat the business accounts as part of the deceased person’s estate, requiring a court order to access the funds. This presents a problem when the funds are needed to either keep the business going or to wrap-up business transactions. To keep the LLC from coming to a standstill upon incapacity or death of the owner, an operating agreement can appoint another responsible party to carry on the business.
Do you have an LLC? Does it have an operating agreement that details who will be in charge in times of death or incapacity? Comment below or schedule a free consultation to learn more about LLC management best-practices.