Post-death of Sole Proprietor in Sole Proprietorship Firm, what about Assets?
A Sole Proprietorship is the simplest business legal entity. It has the least requirements to set up and infact the faster mode to start and set-up the business and it can be started even in a day without GST and if with GST then two days and infact this is one of the oldest and best traditional business entities to be found in India. There is no regulatory compliance except filing of IT Returns and GST Returns and this is anytime a seen as beneficial
As this being Sole Proprietorship which means the Sole Owner of the business, there is no separation between the business entity and the owner e.g. Lalit Jain, the Sole Proprietor of THE LEGAL DESK is one and the same. This means that the assets i.e. bank account, property; stock-in-trade, goodwill, as well as liabilities of the business belong to Lalit Jain.
A Sole Proprietor is a business owned by one person and has these features:- 1. Unlimited Liability; 2. Can sue or be sued in individual’s own name; 3. Can own property if individual has legal capacity; 4. Owner personally liable for debts and losses of business; 5. A Sole Proprietorship exists as long as the Owner is alive.
However, the biggest query comes as to what happens post the death of Sole Proprietor? Briefly, whatever the Sole Proprietor owns as a business sole proprietor is treated as his personal assets and will be distributed according to his/her Will or under the rules of Indian Succession Act. This means the business assets that can be transferred will be passed on to the deceased Sole Proprietor’s beneficiaries under the law.
Distribution and Sale of Assets and Debts shall be as under post-death of Sole Proprietorship of the Business: Assets: Subject to the wishes of the beneficiaries, the executor/administrator of the Sole Proprietor’s estate may sell the assets of the Sole Proprietorship to one of the family members. A beneficiary who buys the business and its assets may choose to continue with the business under his own name. Likewise, he may elect to sell the business to another family member, employ someone else to operate it for him or take up a partner for the business.
Debt: Where the business has debts, the executor/administrator may have no choice but to liquidate all assets of the business to meet any debt incurred by the business. If you are a sole proprietor, you should do a will to have a smooth transition of the business whether it is a sale or distribution.
However, in this today regular market changing trend and legal compliances, this type of Business Entity is not preferable and advisable
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