Elizaveta Pastushenko told Legal Information Agency about the peculiarities of business inheritance for individual entrepreneurs

Elizaveta Pastushenko, a Senior Associate of Private Wealth practice at Maxima Legal, told the Legal Information Agency whether labour and other contracts concluded by an individual entrepreneur are valid after his death and how such business is inherited.

“State registration of a citizen as an individual entrepreneur automatically terminates in case of his death. Thus, inheritance of this status is impossible. In accordance with the Civil Code of the Russian Federation, with death, all issued powers of attorney cease to be valid. Consequently, the powers of all representatives of the businessman are also terminated – the chief accountant, HR manager and other employees are not entitled to make transactions or other actions on behalf of the entrepreneur.

At the same time, the heirs, in addition to the property, assume certain rights and obligations that existed at the individual entrepreneur. But only partially. Thus, the labour contracts concluded with the deceased businessman are terminated. In this case, the legislation does not regulate further actions of employees, the procedure for dismissal, payment of wages and so on. In practice, records of dismissal in the workbook may in such a situation be made by the new employer on the basis of a death certificate or a court decision on the establishment of the fact of termination of labour relations.

Other contracts concluded by the individual entrepreneur continue to be in force, and the rights and obligations under them will pass to the heirs. The exception is contracts directly related to the personality of the businessman (for example, on the creation of artistic work and so on). However, the heirs will be able to make decisions and dispose of property only after six months after death. And they are liable, including to the counterparties of the deceased businessman, only to the extent of the inherited property.

Unfortunately, many mechanisms provided for by law – trust management of property, testamentary disclaimer and others – are not effective enough in solving practical issues within the framework of inheriting an individual entrepreneur’s business. The solution may be comprehensive inheritance planning, including training of future owners to manage the business using alternative mechanisms,” Elizaveta explained.

To read the article (in Russian) please visit Legal Information Agency website >>>