When someone who ran a business dies, two worries usually arrive at once: what happens to the business itself, and what it means for the family left to deal with it. The honest answer is that it depends almost entirely on how the business was set up. A sole trader, a partnership, and a limited company are three very different legal animals, and they behave very differently on death.
This guide explains what happens to each kind of business, who has the authority to step in, what it means for employees and debts, and how inheritance tax treats business assets after the changes that took effect in April 2026. It flags where the law differs across the UK, though business structures are mostly governed by UK-wide law, so the differences are narrower here than in some areas.
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If you can only do one thing today
If you run a business, the single most useful thing you can do is plan ahead. A will, a partnership or shareholders' agreement, and the right insurance can turn a crisis into a manageable handover. See making a will for the starting point.
Sole Traders: the Business and the Person Are the Same
A sole trader is not a separate legal entity. The person and the business are one and the same, which means there are no shares to pass on and no company to continue. The business assets and its debts all become part of the person's estate, and pass under their will or, if there is no will, under the intestacy rules.
In practice, the business usually stops trading at the point of death, and bank accounts in the sole trader's name are typically frozen until a grant of probate or letters of administration is obtained. The executors or administrators (personal representatives) take over responsibility. Their options are broadly to sell the business as a going concern, to keep it running briefly to preserve that value while a sale is arranged, or to wind it down. Personal representatives do not have an automatic power to carry on a business indefinitely, and running it on carries real personal risk. Our guide on executor personal liability explains where that risk sits.
Debts are the part families worry about most. Because a sole trader has unlimited liability, business debts are personal debts, and they are paid out of the estate before anyone inherits. The family do not inherit the debts personally; the liability is the estate's, not theirs, unless they personally guaranteed a business borrowing. Our guide on debt after death covers how estate debts are handled.
Partnerships: What the Agreement Says Matters Enormously
A partnership is two or more people in business together, and what happens on the death of a partner turns almost entirely on whether there is a written partnership agreement.
Without an agreement, the default position is set by the Partnership Act 1890, and it is blunt: the death of a partner usually dissolves the whole partnership. The deceased partner's share of the partnership passes to their estate. Partners in an ordinary partnership have unlimited, joint and several liability.
With a well-drafted partnership agreement, almost all of this can be avoided. A good agreement typically says the partnership continues among the surviving partners, sets out how the deceased partner's share is valued and bought out, and often pairs with life insurance so the survivors have the funds to pay the estate without selling the business.
Scotland: a partnership is its own legal person
Scotland
Limited Companies: the Company Carries On, but Someone Has to Steer It
A limited company is a separate legal entity in its own right. It owns its own assets, owes its own debts, and does not die when a shareholder or director does. The company continues to exist. What changes is who owns and controls it.
Two roles need separating:
- The shares form part of the deceased's estate and pass under their will or the intestacy rules. To transfer them, the personal representatives present the grant of probate or letters of administration to the company, and the company updates its register of members. This is called transmission of shares.
- The directorship does not pass to anyone automatically. A director's role ends on death, and a new director has to be appointed under the company's articles of association by those with authority to do so, usually the remaining directors or the shareholders.
Where there are other directors and shareholders, the company keeps running while the shares are dealt with, and the articles and any shareholders' agreement set out the process.
The sole director and shareholder problem
The hardest situation is the company where one person was the only director and the only shareholder. On their death there is, for a time, no one with authority to run the company, sign cheques, pay staff, or appoint a new director, and the bank may freeze the account.
For companies incorporated on or after 28 April 2013 using the latest Model Articles, article 17(2) can allow the deceased shareholder's personal representatives to appoint a director by written notice, which breaks the deadlock relatively quickly once a grant is obtained. Companies incorporated earlier, or any company with bespoke articles, should be checked, because they may lack an equivalent provision. If you run a single-person company, checking that your articles contain the modern provision, and making a will that deals with the shares, is one of the most useful hours of planning you can spend.
What Happens to the Employees
Where the employer is a limited company, the company is the employer, so the company continues to employ them and, in the ordinary case, nothing changes immediately on the owner's death.
Where the employer is an individual - a sole trader - the position is more difficult. At common law the death of an individual employer can bring the employment contracts to an end, but employees may still be entitled to notice pay and to a statutory redundancy payment, claimed against the estate. Where a business is sold as a going concern, the rules protecting employees on a transfer may apply. The estate remains responsible for wages and other sums owed up to the relevant date, and these rank as debts of the estate.
Inheritance Tax and the Business: Business Property Relief
Business assets can attract a valuable inheritance tax relief, but the rules changed significantly from 6 April 2026, so older guidance is now out of date.
Business Property Relief (BPR) reduces the value of qualifying business assets when working out inheritance tax. Until April 2026, qualifying assets often attracted 100 per cent relief without an upper limit. From 6 April 2026 the relief is capped.
Under the current rules, a single allowance of £2.5 million covers the combined value of property in an estate that qualifies for 100 per cent business property relief or 100 per cent agricultural property relief. Anything above £2.5 million qualifies for relief at 50 per cent rather than 100 per cent, which works out as an effective 20 per cent inheritance tax charge on the excess. The allowance can be transferred to a surviving spouse or civil partner.
A few more points worth knowing:
- Shares on certain markets now get less relief. From the same date, shares traded on markets such as AIM attract 50 per cent relief rather than 100 per cent.
- You can pay the tax in instalments. Inheritance tax attributable to a business or shares can usually be paid in ten equal annual instalments, with the option to do so interest-free extended to a wider range of business and agricultural property.
- The relief has conditions. BPR generally requires the business to be mainly trading rather than holding investments, and the assets usually need to have been owned for at least two years.
Our inheritance tax guide covers the nil-rate bands and how the tax is calculated more generally. For the bigger picture on planning ahead of further changes, see our guide on inheritance tax planning before April 2027.
Getting the Grant and the Practical Steps
Whatever the structure, dealing with a business usually means obtaining the grant first, because banks, Companies House, and buyers will want to see the personal representatives' authority. Our guide on how to apply for probate walks through that process.
Alongside the grant, a few practical steps come up often:
- Tell the people who need to know. That can include the bank, the accountant, HMRC, Companies House for a company, and any business insurers.
- Find the key documents. The will, any partnership or shareholders' agreement, the company's articles, recent accounts, and details of any business loans, guarantees, or key-person insurance.
- Protect the value while you decide. Keep insurance in place, secure premises and stock, and avoid making irreversible decisions before you understand the position.
How the Jurisdictions Compare, in Short
Most of the law here is UK-wide. The Partnership Act 1890 and the Companies Act 2006 apply across England, Wales, Scotland, and Northern Ireland. The clearest difference is that a Scottish partnership has separate legal personality, where an English, Welsh, or Northern Irish ordinary partnership does not. The probate process itself also differs by jurisdiction - confirmation in Scotland, a separate system in Northern Ireland - which matters for transferring shares and accessing business accounts.