Death of a business owner or shareholder: what happens to the company?

Quick answer. The fate of a business when a shareholder or director dies depends on its legal form. A general partnership (SNC) is dissolved by operation of law unless the bylaws provide for continuation; a SARL, SAS or SCI continue, with the shares passing to the heirs. Succession joint ownership can deadlock decisions when several heirs share the shares. Inheritance tax runs from 5% to 45% in the direct line; the surviving spouse is exempt. The Dutreil Pact (article 787 B of the Tax Code) exempts 75% of this tax subject to holding undertakings. Key-person insurance and well-drafted bylaws remain the best planning tools.

The death of a shareholder or director is an event few wish to picture. Yet the law governs it strictly: depending on the company's legal form, the business may dissolve automatically, or instead continue with heirs unfamiliar with its management. The absence of planning exposes the firm to a governance void, disputes among heirs and a tax bill that can reach several hundred thousand euros for a mid-sized business.

Since the 2026 Finance Act (Law No. 2026-103 of 19 February 2026), the Dutreil Pact has seen its holding undertaking extended: we will show how to use it, despite this tightening, to secure a family transfer.

General partnership (SNC): dissolution by operation of law#

An SNC is automatically dissolved when a partner dies, unless the bylaws provide for continuation (article L221-15 of the Commercial Code). Where the bylaws allow, the firm may carry on with the surviving partners alone, or with the deceased's heirs subject to their approval.

Absent approval, the heir becomes a mere creditor for the value of the deceased's rights: the stake does not pass to them in ownership, but they receive a sum equal to its value. If an heir is a minor, the SNC must convert into a limited partnership within one year, failing which it dissolves.

Key point: an SNC without a continuation clause disappears at the first partner's death. This is a major risk for professional firms or farms structured as SNCs.

SARL and EURL: shares pass to the heirs#

A SARL is not dissolved at a shareholder's death (article L223-13 of the Commercial Code): the shares pass freely by succession. The heirs automatically become members, unless the bylaws impose an approval clause.

Approval may be required of the surviving spouse, an heir, an ascendant or a descendant (article L223-14). If approval is withheld, the members must buy or arrange the purchase of the shares within three months, at a value set by an expert (article 1843-4 of the Civil Code). The manager's death likewise does not dissolve the firm: a new director must be appointed.

SAS and SASU: contractual freedom#

The SAS and SASU offer great flexibility (article L227-13 of the Commercial Code): the bylaws may include approval clauses, lock-ups (a temporary ban on selling) or even exclusion of an heir. On the president's death, the bylaws designate the successor. This is precisely why it pays to draft SAS bylaws carefully at incorporation. In a SASU, on the sole shareholder's death, the shares pass to the heirs, in joint ownership.

Civil partnership and SCI: continuation with joint ownership#

A civil partnership, and the property SCI in particular, is not dissolved at a member's death (article 1870 of the Civil Code): it continues with the heirs or legatees, unless an approval clause applies (given "per head"). This is a common set-up where an SCI holding the business premises sits alongside the operating company: the two sets of bylaws must then be kept consistent.

As long as the estate is not divided, the shares are held in joint ownership among the heirs. None of them can decide alone: major decisions (sale, dividend distribution, bylaws amendment) require everyone's consent, or at least the majority set by the bylaws. Add to this the deceased's shareholder current account, a claim that falls into the estate and which the company must repay.

The posthumous mandate (articles 812 onward of the Civil Code) lets a shareholder appoint, during their lifetime, an agent to administer the estate and run the business on the heirs' behalf for two years, renewable up to five. It is a powerful tool to avoid joint-ownership paralysis.

Heirs pay inheritance tax on the value of the shares at the date of death — hence the importance of a serious, dated company valuation.

Example. A child inherits shares valued at 300,000 €. After the 100,000 € allowance, tax applies to 200,000 €. On the progressive direct-line scale, the bill reaches roughly 38,000 €. This cost, payable quickly, may force the heir to sell the shares to settle it — which is why planning matters.

The Dutreil Pact: 75% exemption#

The Dutreil Pact (article 787 B of the Tax Code, in force since 21 February 2026) exempts 75% of the value of the shares from gift and inheritance tax. Two undertakings combine:

1. A collective holding undertaking of at least 2 years, covering at least 34% of the shares of an unlisted company (20% if listed);
2. An individual holding undertaking of 6 years by each heir — extended from 4 to 6 years by the 2026 Finance Act — i.e. up to 8 years of holding in total.

A management role must be held continuously by a signatory or a beneficiary. Where no undertaking was signed before death, two routes remain: the deemed undertaking, if the deceased held, alone or with their family group, at least 34% of the shares stably; failing that, the post-mortem undertaking, signed by the heirs within six months of death.

Example. On shares worth 200,000 €, tax of around 38,000 € becomes, after the 75% Dutreil allowance, tax computed on just 50,000 €, a sharply reduced charge. In return, the holding undertaking is strict: any breach triggers reassessment of the benefit.

Key-person insurance is a policy taken out by the company on a shareholder's or director's life, with the company as beneficiary. Its benefit is twofold: it provides immediate cash and allows the deceased's shares to be bought back without extra borrowing.

On the tax side:

• the premium is a deductible business expense (BOFiP BOI-BIC-CHG-40-20-20);
• the payout to the company is taxable income, but may be spread over five years (article 38 quater of the Tax Code): the profit is split equally over the year of the event and the next four, with previously undeducted premiums following the same schedule.

Cross-owned life insurance among shareholders is a more sophisticated variant: each insures the others' lives to fund a buyout on death.

This is also the moment to prepare the business for transfer by reducing dependence on the key person, and to secure the bylaws from the company's creation.

Sole trader and micro-entrepreneur#

A sole trader has no separate company: their business assets are now ring-fenced from personal assets, but the activity hinges on their person. On death, the business stops; heirs relaunch or wind it up with a simple deregistration at the single window, with no dissolution formality. A will naming a successor avoids much trouble.

Transfer or sale of the shares?#

Where the heirs do not wish to take over, it pays to compare exit routes in advance: transfer or sell the shares, or arrange a dissolution and amicable liquidation if the business is not viable without the deceased.

• Document the share valuation. A dated valuation prevents disputes among heirs and secures both the tax calculation and the sizing of the insurance.
• Review your continuation and approval clauses. A missing clause may cause unexpected dissolution (SNC) or conflict (SARL).
• Anticipate the Dutreil extension. The individual undertaking rises to 6 years: build this duration into your transfer strategy.
• Take out key-person insurance in time. Underwriting and waiting periods can run 6–12 months.
• Name a posthumous agent. It is the simplest safeguard against prolonged joint ownership.

Recently, a partner in a consulting firm called us after the sudden death of his co-founder. No Dutreil Pact, no key-person insurance, bylaws silent on continuation: the heirs found themselves in joint ownership, blocking every decision. The firm went through several months of drift, with clients leaving and its value eroded. A few thousand euros of planning — a Dutreil Pact, insurance, a continuation clause — would have preserved the essentials.

Conversely, an industrial SME owner had drafted a posthumous mandate entrusting management to his general manager for three years. On his death, continuity was immediate, and the heirs could calmly decide, once the estate was settled, whether to keep or sell. The difference between the two stories is not luck, but preparation.

Hayot Expertise tip. Spend a half-day auditing your situation: legal form, bylaws clauses, key-person insurance, Dutreil Pact signature, agent appointment. At Hayot Expertise, we support you in owner wealth management and, where the bylaws need revisiting, in the legal advice that secures the transfer. A morning of careful work spares your loved ones years of complications.