Succession Management in Practice. What Happens to a Sole Proprietorship After the Owner Dies?

The death of a sole trader can lead to the closure of the business overnight. I explain how succession management can prevent this.

A sole proprietorship has one feature that few people think about when setting it up: it is inseparably tied to the person of the entrepreneur. This means that upon their death, the business they built over years can cease to exist literally overnight. The law provides a tool that prevents this — succession management — but it works only if activated in advance, or if the family manages to act within a very short window of time.

Why Does a Sole Proprietorship Disappear Overnight?

From a legal standpoint, the existence of a sole proprietorship ends with the death of its owner. The entrepreneur is removed from the Central Business Register (CEIDG) and their tax identification number (NIP) generally expires. Without prompt action, the consequences compound rapidly: employment contracts with employees lapse as a rule, access to the business bank account may become severely restricted, and licences, permits and authorisations lose their force. Contracts with clients, though they do not formally disappear automatically, may cease to be performed. For the family, this means not only the loss of a loved one but also a real and immediate burden of formalities at the worst possible moment.

What Is Succession Management?

Succession management was introduced by the Act of 5 July 2018 on succession management of a natural person's enterprise and other facilitations relating to business succession. Its purpose is to create a temporary mechanism allowing the business to continue operating after the owner's death, until the estate is settled.

The Act uses two key concepts. The enterprise in succession is the organised set of assets used to conduct the business — treated during the succession management period as a separate entity with its own NIP and taxpayer status. The succession manager is the person who actually runs that enterprise: they conclude and perform contracts, pay employees, settle taxes and social contributions, and represent the business before courts and authorities. Crucially, the succession manager is not an heir and does not take ownership of the business — they act in their own name but on behalf of the owners of the enterprise in succession.

Appointment During the Owner's Lifetime vs. After Death

This is the crux of the entire institution, because the two paths differ in almost every respect.

Appointment during the owner's lifetime is the simplest solution. The entrepreneur may designate a succession manager and register them in CEIDG — free of charge, and the registration has no legal effect for as long as the entrepreneur is alive. They may also specify that upon death the role of succession manager will be assumed by a previously appointed commercial proxy (prokura), and may additionally appoint a reserve manager in case the first one resigns. If the entrepreneur takes this step, succession management activates automatically upon death: the manager can immediately take charge of running the business, without any notarial involvement or additional formalities, and contracts with employees and clients remain in force.

Appointment after death is far more difficult. It may be made by authorised persons: the surviving spouse with a share in the enterprise in succession, a statutory or testamentary heir who has accepted the inheritance, or a vindication legatee with a share in the enterprise. The appointment requires the form of a notarial deed under pain of invalidity, and requires the consent of persons whose combined share in the enterprise in succession exceeds 85/100 — which in practice often means the consent of all heirs. Most critically, the entire process must be completed within the absolute deadline of two months from the date of death. This deadline cannot be extended or restored.

The difference is fundamental. A single entry in CEIDG made during the owner's lifetime — costing nothing — turns a chaotic race against time after death into a smooth handover.

What Happens to Employees?

The fate of employment contracts depends entirely on whether succession management was established at the moment of death. If the entrepreneur appointed a succession manager during their lifetime, employment relationships continue on existing terms until succession management expires. Employees experience no disruption, and all employer obligations are assumed by the succession manager.

If succession management was not established at the moment of death, employment contracts lapse after thirty days from the date of the entrepreneur's death. This can be prevented: within that window, a person authorised to take protective measures, or a rapidly appointed succession manager, may conclude a written agreement with each employee to continue the employment relationship.

Contracts, Licences and the Business Bank Account

The Act mitigates several consequences of the entrepreneur's death independently of employment matters, but each comes with a deadline:

• contracts with clients do not lapse on death — performance is not suspended and continues to be carried out by the succession manager,
• licences, permits and authorisations do not disappear automatically, but to keep them in force the succession manager must within three months of appointment apply for confirmation of the right to exercise them; the owner may also apply for a transfer of the decision within six months of death,
• regulated business activity requires an application to amend the registration entry, together with a declaration of compliance, within one month of appointment,
• the business bank account is not automatically closed — a manager appointed during the owner's lifetime may use it from the moment of death; one appointed after death may do so only from the moment of appointment,
• the inventory of the enterprise in succession, covering assets and liabilities as at the date of death, must be drawn up by the succession manager before a notary promptly after taking up the role.

The common thread is this: almost every step has a deadline, and the clock starts running at the moment of death or appointment.

How Long Does Succession Management Last?

Succession management lasts as a rule two years from the date of the entrepreneur's death. For good cause, a court may extend this period — but to no more than five years from the date of death. The application is made to the court of succession, and the fee is PLN 300.

Many entrepreneurs assume succession management always runs the full two years. In fact, the Act provides for a number of situations in which it expires earlier by operation of law — for example if no one accepts the inheritance within two months, or if the entire enterprise is acquired by a single person. The actual time available to settle affairs may therefore be shorter than expected. Owners of the enterprise in succession are jointly and severally liable for obligations incurred during the management period, sharing in profits and losses alike.

Succession Management Is a Temporary Solution

The most important thing to understand is what succession management is not. It is a bridge for the duration of probate proceedings, not a way to permanently transfer the business. An heir cannot simply continue operating someone else's sole proprietorship as their own. Succession management gives the family what they need most after a sudden death: time and peace of mind to decide whether — and in what form — to continue the business.

It is also worth knowing the favourable tax rules: acquisition of a natural person's enterprise by way of inheritance or vindication legacy is exempt from inheritance and gift tax — for every acquirer — provided the acquisition is notified and the enterprise is operated for at least two years.

What to Do Right Now?

If you run a sole proprietorship, the most important step is simple, free and takes minutes:

• Appoint a succession manager and register them in CEIDG. It costs nothing.
• Consider a reserve manager — in case the first one resigns or is unable to act.
• Coordinate this with your will, so that the question of inheritance and the question of management do not conflict.
• If you have significant assets, plan succession in good time. Succession management is a temporary measure, not a permanent structure for heirs — existing legislation offers a wide range of succession planning options tailored to the individual entrepreneur.
• If you operate through a civil partnership, make sure the partnership agreement contains appropriate provisions — the death of one partner can dissolve it.

---

A decision you do not make for yourself today may fall on your family after your death. It is therefore worth thinking about the options available now, so that you can make an informed choice.

See also: Family Foundation After the Presidential Veto — planning the succession of private assets. Legal services in asset and succession matters: Practice areas.