We can’t answer metaphysical questions, but we do know the death of a limited liability company (“LLC”) member can dramatically affect the operation of the company. What can happen when death occurs?
First, what does the LLC’s operating agreement say?
The way that an LLC is impacted by the death of a member depends on the terms stated in the operating agreement.
A signed operating agreement is a requirement in New York State as a way of regulating the internal operation and affairs of the company. A well drafted operating agreement will address the effect of how the membership interests will be handled in the event of a member’s death.
For example, the operating agreement may permit the remaining members of the LLC to elect to continue operation of the LLC following the death of one. The operating agreement may also say that the remaining members must buy out the membership interests of the deceased at a particular value. Or it may permit the transfer of the membership interests to the beneficiary of the decedent’s estate. Another option might be for the operating agreement to call for the dissolution of the LLC if a member dies.
What if there’s no operating agreement?
Under New York law, there shouldn’t be an instance where there isn’t an operating agreement in place. However, owners can be negligent and not enter into one all too many times. If there’s no operating agreement in place, or if the agreement is poorly drafted and doesn’t make any provisions regarding the death of a member, New York law will determine the next steps.
If there’s no provision, the interest in the LLC is passed to the estate upon death. As a result, the executor of the estate had the authority to "may exercise all of the member's rights for the purpose of settling his or her estate.” This can mean exerting total control, or partial control, depending on how many members are in the business and their proportionate share.
No one likes to think about death, but business owners should take care to continue their business legacy after their passing. Working with a small business attorney to ensure there are written instructions in place to protect your family’s livelihood is essential. Contact LOVE LAW FIRM to schedule your complimentary consultation for how we can help you protect your life’s work.
Francine E. Love is the Founder & Managing Attorney at LOVE LAW FIRM, PLLC which dedicates its practice to serving entrepreneurs, start-ups and small businesses. The opinions expressed are those of the author. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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