Continuity of Business Entities - Explained
When does a business entity end?
Written by Jason Gordon
Updated at September 24th, 2021
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Table of Contents
What is continuity of a business entity?What happens when a business owner leaves he business?Discussion QuestionPractice QuestionAcademic ResearchWhat is continuity of a business entity?
The continuity of the business entity concerns the effect on the business of a major change in the ownership and organization structure. More specifically, this question addresses what types of conduct by business owners can cause the business to dissolve.
Related Topics
- Business Continuity Planning
- Buy Sell Agreements
- Shotgun Clause
- Winding Up
- Dissolving a Foreign Qualification
Next Article: Ownership Structure of Business Entities Back to: BUSINESS ENTITIES
What happens when a business owner leaves he business?
Owners of a business entity must understand the stability and durability of the organization if or when an owner leaves the business. Managers are concerned with the stability of customers and suppliers and should make certain that changes in ownership or structure do not have unintended consequences on the business operations. The primary change affecting the status of a business entity is the death or dissociation of an owner. In some instances this occurrence may be grounds for the dissolution of the business. Another dissolution event may arise through a limitation on the transfer of ownership by any individual in the business. Such a scenario may effectively dissolve the business if one individual wishes to liquidate her interest.
- Example: Mary, Bob, and I start carrying on business as a general partnership. We do not have a partnership agreement. When Mary decides to leave the partnership, the default rule is that the partnership dissolves.
Related Topics
- What are Business Entities?
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What is a Closely-held vs Publicly-held Business?
-
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Creation of a business entity?
- What is Maintenance of a business entity?
- What is Continuity of a business entity?
- What is the Ownership structure of a business entity?
- What is Control of a business entity?
- What is Personal liability of owners of a business entity?
- What is Compensation of business owners?
- What is Taxation of a business entity?
- What is Sales & Use tax?
- What are payroll and self-employment taxes?
Discussion Question
Can you think of any situations where a business has faced serious turmoil when a co-owner leaves the company? Passes away? Declares personal bankruptcy? What were the primary issues and what was the result?
Practice Question
Mike and Bryan are partners in a business venture. They have a partnership agreement. Bryan passes away and his will leaves his interest in the business to his wife, Jane. What information do you need to know to determine the status of the business entity? Why?
- You will need to know whether the business was a partnership, LLC, or Corporation. The default rule (unless there is a written agreement otherwise) is that a partnership dissolves when any partner leaves the partnership (dissociates). Whether the LLC dissolves will depend upon state law. A corporation, in every state, continues when a shareholder dissociates.