Business Ownership and Probate: What Every Owner Needs to Know

When a business owner passes away, their ownership interest doesn’t automatically transfer to their heirs—unless they’ve planned ahead. Without proactive estate planning, the business becomes part of the decedent’s probate estate, even if the business is inactive or not profitable.

The probate process for business assets can be complex and time-sensitive. Understanding how it works—and how to avoid it—is essential for business owners who want to protect their company and legacy.

1. Business Ownership as a Probate Asset

What Is a Business Interest?

A business interest refers to an individual's ownership stake in a business entity, such as:

• A sole proprietorship (where the owner and business are legally the same)
• A partnership interest (general or limited)
• Shares in a corporation
• Membership units in a Limited Liability Company (LLC)

Why Must Business Interests Be Probated?

Unless the owner has made legal arrangements—such as placing the interest in a trust, executing a buy-sell agreement, or naming a transfer-on-death (TOD) beneficiary—the ownership interest is part of the estate and must go through probate.

Probate is the court-supervised process of a decedent’s will through a process called probate. Probate is the legal process by which a court validates the will (if any), settles debts, and oversees the distribution of assets, including business interests, to heirs or beneficiaries. In Ohio, this process is governed by the Ohio Revised Code Chapter 2107–2109.

How Can Probate Be Avoided?

Estate planning tools can help business owners avoid probate for their business interests. Common strategies include:

• A revocable or irrevocable trust to hold business interests
• A buy-sell agreement specifying what happens to the interest upon death
• Transfer-on-death designations, where permitted by Ohio law

If any of these steps are taken, the decadent’s interest in the company can pass outside of probate. Without such planning, the business interest must be probated, which can delay transfer and create uncertainty for the business and its stakeholders.

2. Handling Business Interests in Probate

When a business interest enters probate, several key steps occur:

Identification and Validation

The executor or personal representative must confirm the decedent’s ownership. This often means reviewing:

• Operating agreements
• Corporate bylaws or partnership agreements
  Tax returns or transcripts

If no clear documentation exists, determining ownership percentage can be challenging.

Business Valuation

The business must be professionally appraised to determine its fair market value, which affects:

• Estate taxes
• Beneficiary distributions
• Potential creditor payments

Valuation becomes the cost basis for heirs who later sell the business. Courts typically require appraisals by certified professionals, such as CPAs or licensed business valuators.

In some counties, the probate court may require appraisers from an approved list. Check with your local probate court or consult an attorney.

Settling Debts

If the estate owes creditors, and there aren’t enough other assets, all or part of the business interest may be sold to settle debts. The probate court ensures debts are satisfied before assets are distributed.

 Transfer of Ownership

Once all debts and taxes are addressed, the business interest is transferred to the appropriate beneficiaries according to the will or Ohio intestate succession laws (if no will exists).

Role of the Executor or Administrator

During probate, the executor must:

• Oversee business operations (when permitted)
• Make strategic decisions to preserve value
• Maintain thorough records of business-related actions
  

However, some businesses—like car dealerships or medical practices—require licenses tied to the individual owner. When the license holder dies, the license often terminates, and operations must cease.

Consult an attorney familiar with your industry to understand whether your business can legally operate during probate.

If the executor lacks the experience to manage operations, the court may appoint a business manager to oversee day-to-day activities.

3. Why Businesses Need an Appraisal During Probate

Importance of Accurate Valuation

A business appraisal is a critical step in the probate process for several reasons:

Estate Tax Purposes: The IRS and state tax authorities require an accurate valuation to assess estate taxes.

Equitable Distribution: If multiple heirs are involved, a fair valuation ensures each receives their proper share.

Creditor Claims: The value of the business interest affects the estate’s ability to satisfy debts.

Potential Disputes: An independent appraisal can help prevent or resolve conflicts among heirs or between heirs and creditors.

How Is a Business Appraised?

Appraisers may use several methods, including:

Income Approach: Based on the business’s earning potential.

Market Approach: Based on sales of comparable businesses.

Asset Approach: Based on the value of the business’s assets minus liabilities.

The chosen method depends on the nature of the business, its financial records, and market conditions. There are individuals, such as CPAs and licensed tax advisors, that are qualified to do business valuations. In probate, the Court will need to review the appraisal and it will become public record. Some Courts may make you select from an approved list of appraisers.

4. Final Thoughts: Plan Ahead to Protect Your Business

Without an estate plan, a business becomes just another asset in probate—subject to delays, value loss, and legal complexity.

Estate planning tools like trusts, buy-sell agreements, and clear documentation can:

• Keep your business out of probate
• Minimize tax exposure
• Ensure continuity for employees, customers, and heirs

Don’t Wait—Plan Now

The best time to plan is before the issue arises. Whether you’re a sole proprietor, LLC member, or shareholder, a proper estate plan ensures your business—and your legacy—is protected.

Need Help Creating a Business Estate Plan?

At ALH Law Group we help business owners safeguard their companies through strategic estate planning. Whether you're forming a trust, drafting a buy-sell agreement, or managing probate, our experienced legal team is here to guide you.

Contact us today for a consultation to protect your business, your family, and your legacy.