As the name indicates, sole proprietorship implies that a company with the single owner which will dissolve if the owner dies. Passing the company on to the two sons will require to create a new company. As Dr. Simon suggested in the lecture, the sons might utilize the resources the father's company, however, legally, the son's company will be essentially different from their dad. of the dad which can be passed on.
Unfortunately, in sole proprietorship the company cannot be inherited which means that it cannot be passed down to their children. You cannot pass down the company but you can pass down your private asset to whoever you want because it is your personal estate. After death the business can still run but it has to be under a new sole proprietorship.
As aja38 & vcf3 have stated, a sole proprietorship cannot be passed on. If the father wants to give his business to his heirs then he would have to change the business to an LLP. From there the dad can "sell" his part of the company to his son in order to no longer have ties to the company.
There are a few options when it comes to passing down a sole proprietorship. It really depends on how they want to pass it along. If they want to start the process of transferring ownership when the kids are adults, they can convert it to a corporation or LLC. This way the father can retain ownership while living and can show the ropes to his sons. When he passes away the business can still continue. In contrast, a partnership would dissolve once he passes so they need to keep that in mind for the future.
Like many of you said in here, the sole proprietorship has only one owner and it cannot be passed down to anyone even if it is a family member. However, there is always an option of buying the company father's owned and then turning it into a partnership or initiating a new business and then share the assets using the same resources.
A sole proprietorship cannot be passed down from one person to another, however there are ways around it. One way is for the father's company to be bought out by the son(s) and then have them change the business into one that can be passed down, such as an LLC or a corporation. Another way is to just have the father do take those steps himself before he passes the company down and steps out of the picture to enjoy his retirement.
A few responses have suggested changing the business from a sole proprietorship to a LLP.
In other situations, is it possible for a business to change between other types of corporations? For example, change from a partnership to an LLP, or from an LLC to a Corporation (Inc.).
A few responses have suggested changing the business from a sole proprietorship to a LLP.
In other situations, is it possible for a business to change between other types of corporations? For example, change from a partnership to an LLP, or from an LLC to a Corporation (Inc.).
It is definitely possible to transfer a sole proprietorship but there will be several factors that you need to take into consideration such as if you want to share ownership (partnership) and if you want to retain sole control and if you want to transfer the company without any pay given in return from the receiving individuals. Another issue you want to keep in mind is how you want your transfer to be taxed which can significantly minimize your overall tax liability. This sole proprietorship can be converted into a partnership but you have to be careful because after you pass away, the business will perish but if you convert the business into an LLC or corporation then the business will continue after you pass away.
Sole proprietorship cannot be passed down as family business. The father could hire his son but when he dies the company dies with him and the son cannot get the profit. One thing could be done is that the father could convert it into LLC by bringing his son aboard and then sell his parts of the share to his son so that his son becomes the sole owner.
When starting a business, it is important to choose the right corporation that fits your needs as well as your family's needs. Some people choose sole proprietorship because it is the easier option and there are less risks associated with it, but they also have to think whether all their hard work will benefit their family after they're gone. Turning a sole Proprietorship into an LLC for instance, is beneficial if you want to pass down the business to your kids or wife by selling them a share or making them part of the business as well. The easiest option is to turn it to LLC, and that way the son and the father can have a share in the company, and the company can still exist even after one of them passes away.
In a sole proprietorship, the owner of the business and the business are a single entity and this person is completely responsible for the operation of the company. The proprietorship cannot be transferred to somebody else. The solution might be to covert the category to a limited liability proprietorship (LLP) wherein the company's shares can be held by a limited number of members. But for this, the father will have to sell the shares he owns to his sons before he dies.
The best solution would be for the sons to start a new business on the partnership on their own terms so that it does not lead to any confusion in the future.
It must be different for every company and every individual, but my experiences tell me don't ever do business with your family and try to avid family-owned businesses altogether. Family-owned companies tend to create unfair ranks within the working force. You might be older, more experienced, and more accomplished in your area, but a supervisor out of college without any experience and egomaniac attitude may come to your department. It is unfair! This is what happened to me a couple of years ago. Well, I was not the most experienced, but I had my talents, I was good at my job, and I was respected. Then, this supervisor came into my department and started talking badly to all other employees. My best advantage was I was usually out of the office and in the field, but 1 of my colleagues actually got fired after going to human resources because of his abuses in the department. Again my point will be, although not all family-owned companies might be like this, according to my experience, avoid family-owned businesses at all costs.
The ownership of a sole proprietor business cannot be directly passed on. The sons would have to start a new business, either with sole proprietorship (one of them owns and runs it), or a Limited Liability Partnership (both of them own and run it). The father would be able to sell the assets of his business to the sons. The asset may include inventory, land, buildings, equipment, or even brands, copyrights, and trademarks. This way, the new business is set up as closely as possible to the old one, but owned by the sons.
From the lecture, we saw that a sole proprietorship cannot be passed down or sold according to the law. Once the owner of that sole proprietorship dies, the business dies with them. Im sure there are ways around this that includes changing the type of business from a sole proprietorship to something else, but in terms of handing down a sole proprietorship itself, that cannot be done.
