Business Assets in NC Probate: LLCs, Sole Props, and Partnerships
What Happens to a Business When the Owner Dies in NC?
When a business owner dies in North Carolina, one of the first and most urgent questions is: what happens to the business? The answer depends entirely on how the business was structured, what documents govern it, and whether any succession planning was done in advance.
For families serving as executors or administrators of an estate that includes a business, the stakes are high. A business can be the most valuable asset in the estate, and it can also be the most fragile. Mishandling the transition can destroy value for beneficiaries, create legal liability for the executor, and leave employees, customers, and partners in the lurch.
This article explains how North Carolina probate law treats different types of business structures: sole proprietorships, LLCs, partnerships, and S-corporations.
Sole Proprietorships: Fully in Probate
A sole proprietorship is the simplest and most legally vulnerable business structure at death. Because a sole proprietorship has no legal existence separate from its owner, when the owner dies, the business effectively dies with them.
All assets associated with the sole proprietorship, including equipment, inventory, accounts receivable, intellectual property, and the business’s bank accounts, become part of the deceased’s personal probate estate. They are inventoried, valued, subject to creditor claims, and ultimately distributed to beneficiaries according to the will or NC intestate succession law.
This creates several practical problems:
- Business operations may halt immediately. Without the owner, there is no legal authority for anyone to continue operating the business unless the will grants the executor specific authority to do so.
- Business liabilities flow to the estate. Because there is no legal separation between the owner and the business, business debts and personal debts are lumped together as claims against the estate.
- Business value can evaporate quickly. Client relationships, ongoing contracts, and goodwill are often tied to the individual owner. Delays in probate can destroy what might have been sold as a going concern.
What executors should do: If the will grants authority to continue operating or sell the business, act quickly. Consult with an NC probate attorney before making any significant decisions. Time is especially critical for businesses with perishable inventory, ongoing service contracts, or key employees who may leave.
LLCs: It Depends on the Operating Agreement
A limited liability company (LLC) is a separate legal entity, which means it does not automatically become part of the probate estate in the same way a sole proprietorship does. However, the membership interest in the LLC, the deceased owner’s ownership stake, does become part of the probate estate.
What happens next depends on the LLC’s operating agreement. This is the document that governs how the LLC is run and what happens when a member dies. Here are the most common scenarios:
Scenario 1: The operating agreement is silent. If the operating agreement has no provisions addressing the death of a member, NC law (NC General Statutes Chapter 57D) applies by default. Under NC law, the deceased member’s estate receives the economic rights (profits, distributions) but the heirs do not automatically become full voting members. They become “transferees” with economic rights only, unless the remaining members vote to admit them as full members.
Scenario 2: The operating agreement has a buyout clause. Many operating agreements require that the deceased member’s interest be purchased by the LLC or the surviving members at a price set by a formula. This is common in multi-member LLCs and is often funded by life insurance. If this clause exists, the estate receives cash (or a payment stream) rather than an ongoing ownership interest.
Scenario 3: The operating agreement permits free transfer. Some agreements allow the deceased’s interest to pass to heirs as full membership interests. This is less common but does occur.
Practical takeaway: The operating agreement is the single most important document when an LLC owner dies. If you are administering an estate that includes an LLC interest, obtain and review the operating agreement immediately. If no operating agreement exists or you cannot locate it, consult an NC business attorney before taking any action.
Partnerships: Buyout Clauses and Dissolution Risk
General partnerships and limited partnerships face unique challenges at the death of a partner. Under NC law, the death of a general partner can trigger dissolution of the partnership unless the partnership agreement provides otherwise.
Partnership agreements (also called partnership agreements or LPA documents for limited partnerships) typically address what happens at a partner’s death:
- A buyout clause requires the surviving partners to purchase the deceased partner’s interest at a set price or formula.
- A continuation clause allows the partnership to continue without the deceased partner.
- A dissolution clause may require winding up the partnership and distributing assets.
If no partnership agreement exists or the agreement is silent, NC law provides default rules. For general partnerships under the NC Uniform Partnership Act, the death of a partner triggers a buyout of the deceased’s interest at fair value, and the remaining partners may continue the business.
Business valuation becomes critical. Whether the interest is being sold through a buyout or distributed to heirs, someone must determine what the partnership interest is worth. This typically requires a formal business valuation by a qualified appraiser, which can be expensive and time-consuming.
For limited partnerships, the deceased limited partner’s interest passes to their estate without disrupting the business (since limited partners are passive investors). The general partner continues to run the business.
S-Corporation Shares: Transfer Restrictions Matter
S-corporations are a popular structure for small businesses because of their tax advantages, but they come with strict IRS rules about who can own S-corp shares. Eligible shareholders include US citizens and resident aliens, certain trusts, and estates. Foreign individuals, corporations, and most partnerships cannot own S-corp shares.
When an S-corp owner dies, their shares pass to the estate, which is an eligible shareholder. The estate can hold the shares during the probate process without triggering loss of S-corp status. However, once the estate closes and shares are distributed to beneficiaries, each beneficiary must also be an eligible shareholder. If a beneficiary is ineligible (for example, a non-resident alien), the corporation may lose its S-corp election, which has significant tax consequences.
Shareholder agreements in S-corporations typically include right-of-first-refusal provisions or buyout clauses similar to LLCs. Review these documents immediately.
NC-specific consideration: NC follows federal S-corp rules for the most part but has its own corporate income tax structure. The executor should consult a CPA familiar with both NC and federal tax law before making any decisions about S-corp shares.
Business Valuation: A Necessary and Often Difficult Process
Regardless of business structure, the executor has a duty to inventory and value all estate assets, including business interests. For the NC estate inventory (due within 90 days of the executor’s qualification), the business interest must be assigned a value.
Valuing a business is not simple. Common approaches include:
- Income approach: Based on the business’s earnings capacity and projected future cash flows.
- Market approach: Based on comparable sales of similar businesses.
- Asset approach: Based on the net value of business assets minus liabilities.
For most small businesses, the executor will need to hire a certified business valuator or CPA to prepare a defensible valuation. This cost is an estate expense, payable from estate assets before distribution to beneficiaries.
Review our article on estate inventory requirements in NC for more on the 90-day deadline and what must be included.
Protecting the Business During Probate
The probate process can take months or even years. During that time, the business must be managed, protected, and potentially operated. The executor has several tools available:
Authority to continue the business. A well-drafted will may grant the executor explicit authority to continue operating the business for a period of time. Without this authority, the executor’s ability to make business decisions may be limited.
Appointment of a business manager. The executor can hire someone to manage the business during probate, with compensation as a reasonable estate expense.
Emergency petition to the court. If quick decisions are needed (accepting a major contract, selling perishable inventory, dealing with a lease expiration), the executor can petition the NC superior court for specific authority.
Sale of the business. In many cases, the best outcome for beneficiaries is to sell the business as a going concern. The executor may be able to do this without court approval for personal property, but real property associated with the business typically requires court approval or beneficiary consent.
How Afterpath Supports Business Estate Administration
When an estate includes a business, the complexity multiplies. Afterpath’s task management system is designed to track every deadline and required step, from the 90-day inventory filing to creditor claim deadlines to final distribution.
Pathfinder, Afterpath’s built-in estate guide, can help you understand your obligations as an executor dealing with business assets, walk you through the questions you need to answer (What type of entity is it? Is there an operating agreement? Are there co-owners?), and help you identify what professional help you need.
Afterpath’s document vault provides a secure place to store operating agreements, partnership agreements, shareholder agreements, business tax returns, and valuations, all the critical documents that must be located, organized, and shared with attorneys, accountants, and the court.
The NC compliance engine keeps you aligned with NC-specific requirements, including proper notification of creditors, the estate inventory deadline, and the procedures for selling business assets during probate.
Frequently Asked Questions
Q: My father owned a small landscaping business as a sole proprietor. Can I just keep running it while we go through probate?
A: Not without proper authority. As executor, you may have authority under the will to continue operating the business, but you should confirm this with an NC probate attorney before proceeding. Operating the business without proper authority could create personal liability for you. Act quickly, as the business may have time-sensitive contracts or obligations.
Q: My mother was one of three LLC members. Do I now own her membership interest?
A: You are entitled to the economic value of her interest, but whether you become a full voting member depends on the LLC’s operating agreement. Review that document immediately and consult an attorney before attending any LLC meetings or making any business decisions on behalf of the LLC.
Q: Does the LLC itself go through probate?
A: The LLC as an entity does not go through probate. What goes through probate is your parent’s membership interest in the LLC. The LLC continues to exist as a separate legal entity, but the ownership stake must be administered as part of the estate.
Q: How does Afterpath help with estates that include business assets?
A: Afterpath’s task management system, Pathfinder guide, and document vault are specifically designed to handle the complexity of business-asset estates. From tracking the 90-day inventory deadline to organizing operating agreements and valuation reports, Afterpath keeps everything in order. Join the waitlist at /waitlist/ to get early access.
Q: How long does it take to settle an estate that includes a business?
A: Significantly longer than a simple estate. Business valuations take time, operating agreements must be reviewed, potential buyers must be identified if a sale is planned, and tax issues must be resolved. Expect the process to take 12 to 24 months or longer, depending on the complexity of the business and whether any disputes arise.
Get the Right Help Early
Estates involving business assets are among the most complex in North Carolina probate. The decisions made in the first days and weeks after a business owner’s death can have lasting consequences for the value of the estate and the wellbeing of the beneficiaries.
Afterpath is built to support executors through exactly this kind of complexity. Pathfinder can help you understand your options, the task management system keeps every deadline in view, and the document vault ensures nothing gets lost.
Join the Afterpath waitlist at /waitlist/ and get the support you need to handle even the most complex North Carolina estate.
Ready to make this easier?
Afterpath guides you through every step of the probate process.
Join the Waitlist