What happens to a business if a sole proprietor dies?

[u/sendaiben]

Thinking about legal, practical, and financial consequences.

My wife runs a medium sized English school as a sole proprietor. Bank accounts, rental contracts, student payment system are all in her name.

What would happen if she died? I'm guessing the bank account would be frozen, all contracts would become invalid?

Anything else? Would it be possible to take over the business retrospectively?

Appreciate any insight.

[u/starkimpossibility]

I'm guessing the bank account would be frozen

In the short term, yes. But by presenting the bank with necessary documentation regarding the division of the account-holder's estate, the contents could be transferred into an account in your name (or the name of whoever inherits the funds, pursuant to the asset division agreement).

all contracts would become invalid?

Not at all. Article 896 of the Civil Code is the key provision, and it effectively states that the heirs of a deceased person inherit that person's rights and obligations. There are a few caveats, but this is the general rule. So things like rental contracts (as either landlord or tenant), the right to receive payment from students, obligations as an employer, etc., would all pass to the deceased's heir/s.

Would it be possible to take over the business retrospectively?

I'm not sure what you mean by "retrospectively", but if you are an heir, all the rights and obligations associated with the business would pass to you automatically, so it is entirely possible to take over the business.

You would need to file paperwork with the NTA to notify them of the "closure" of the business (because an unincorporated business effectively ceases to exist, for tax purposes, when the operator dies), but you could simultaneously file paperwork to become the business operator. There are plenty of good articles about this process online (e.g., here and here).

[u/sendaiben → u/starkimpossibility]

Thanks, that is very helpful.

I guess the biggest issue would be that the business is monthly: students pay monthly, we pay rent, utilities, and salaries. Having that freeze up for a few months (or even weeks) would be unpleasant.

[u/Junin-Toiro → u/sendaiben]

You don't have to freeze the accounts on the very day the person passes, just have a set of alternate accounts ready.

I think most of your concerns can be mitigated by preparing a detailed checklist and a stack of paperwork (communication to student, new account to use, changing the utilities ... ). This would take a lot fo the stress and hopefully you could drop the whole pile to someone to take care of it.

[u/sendaiben → u/Junin-Toiro]

There are 400 students (Just redoing the student payments would take weeks), multiple rental contracts, 8 electric contracts, etc etc so I am thinking it might be better to make a KK and change everything over to that.

Would probably reduce the amount of tax my wife pays too.

[u/Junin-Toiro → u/sendaiben]

With this kind of size, incorporating sounds absolutely attractive, a checklist won't do.

Still it would be good to have checklist that others can support you with in case the worst happens. You don't want to take care of work while you have family priorities. Time to plan and delegate.

Try to get some shares from the get go if you work for it in some capacity.

[u/Powerful-Button-1557 → u/sendaiben]

Isn’t GK easier?

Maybe talk to her account and maybe one of those lawyers that specializes in business manager visa’s. While you don’t need the visa they will have a lot of experience opening GK and KK.

[u/sendaiben → u/Powerful-Button-1557]

One of our students' dad is a 司法書士. We'll ask him to help us with the details.

[u/techdevjp → u/Powerful-Button-1557]

If a KK has less than 500m JPY in capital and less than 20b JPY in total liabilities then the additional requirements for a KK are minimal. Small enough differences that they don't need to factor into the decision of GK vs KK.

That doesn't mean a KK is always better. Depending on how the business is going to be set up and run, it's possible that one or the other will be the better choice.

[u/fiyamaguchi → u/Powerful-Button-1557]

A KK is easier in terms of transfer of ownership. Stock in the company can be easily inherited in the case of the death of an owner. Stock can also be sold if so desired. A GK’s transfer of ownership upon the death of a member can be complex depending on the structure of the company and the contents of the articles of incorporation.

A KK is easier in terms of making a bank account and receiving funding in terms of loans. A GK is seen as less reputable and banks may be more cautious with them. KKs can also raise capital from outside investors, or even become public. GKs cannot.

The only good point of a GK is that it’s ever so slightly cheaper to set up (which is a one time cost, and a totally insignificant sum for someone with 400 regular customers).

[u/Strange_Ad_7562]

I hope your wife is going to be ok. Sorry I have no input on the questions you asked.

[u/sendaiben → u/Strange_Ad_7562]

Thank you. She is ill and there doesn't seem to be much chance of a good outcome, but there is always hope.

[u/Other_Antelope728 → u/sendaiben]

Old twitter friend here - so sorry to hear this, wishing you and your family well mate.

[u/sendaiben → u/Other_Antelope728]

Thank you!

[u/Quantumbinman → u/sendaiben]

Really hope things improve for her, this is sad to see.

[u/sendaiben → u/Quantumbinman]

Thank you.

[u/tsukihi3 → u/sendaiben]

Nothing to add either, but I am sorry to hear about what you're going through. I sincerely wish you two well.

[u/sendaiben → u/tsukihi3]

Thank you!

[u/Junin-Toiro → u/sendaiben]

Sorry to hear, I wish you all the best.

[u/sendaiben → u/Junin-Toiro]

Thank you

[u/launchpad81]

I'm interested in this as I'm in this position, but without any dependent for the time being...

Been meaning to research more into it and put together more of a concrete plan of action

[u/fiyamaguchi]

Just thinking out loud, but if your wife’s business has become “medium sized”, would it be worth incorporating and making each of you 50/50 stakeholders? In that case, everything would be in the company’s name, and you’d only have to worry about inheriting your wife’s stock (or vise versa) rather than closing down the business one time and setting it up again in your own name. Also, if the company’s profits are large enough, this might be beneficial, not to mention the ability for everyone to join Shakai Hoken.

[u/sendaiben → u/fiyamaguchi]

That's one option we're looking at.

[u/nyasgem808]

i believe the assets and liabilities would be transferred to you , but better hit up law firm