Who takes over when a business’s leader dies? The succession question in your business depends a great deal on its form, and there are three: the single proprietorship, the partnership, and the corporation.
As its name suggests, a single proprietorship is a business where the owner is at the same time the worker—though this does not stop him from hiring other people to run his enterprise. A single proprietorship gives the owner the privilege of making his own decisions, but it’s likely to close upon his death or incapacity unless someone in the family is willing and able to take over.
A partnership requires at least two people who know and trust each other. Their mere agreement gives rise to the partnership and its juridical personality, but that partnership is automatically dissolved when its purpose has been served, when something happens that makes it illegal for the partners to continue the business, or when one of the partners dies, withdraws, becomes bankrupt, is imprisoned or expelled from the union, or when a new partner is admitted to the union. A partner may also demand the dissolution of the partnership at any time, without sufficient cause and subject only to his liability for damages for breach of contract.
Like a partnership, a corporation has a personality separate from the people comprising it, but it enjoys the right of succession and is not affected by the death, insolvency or other incapacity of any member or stockholder.
And unlike a partner, a stockholder may freely transfer his shares in the corporation, giving his transferee the status of a stockholder even without the consent of the other stockholders. A corporation may also not be dissolved unless the dissolution is approved by stockholders owning at least two-thirds of the outstanding capital stock, and the Securities and Exchange Commission, the securities watchdog, equally approves.
This article was originally published in the January-February 2005 issue of Entrepreneur Philippines.