Sole LLC without an operating agreement?
So what happens if you pass away without any type of succession plan for your business? Particularly, what if there is no operating agreement for the LLC? This could mean chaos for your loved ones and business associates. So what if there isn’t an operating agreement and you’re the sole owner of an LLC, your default state statutes might say that the business must be dissolved when you die. However, some states will allow the sole member’s rights in the company to be transferred to the heirs or beneficiaries. Either way, here, the LLC is likely going to have to go through probate.
Multi-member LLC without an operating agreement?
What about if there is not an operating agreement and there are multiple members in your LLC? Some states do require dissolution if a member passes away, but most states don’t automatically require dissolution. So if you are part of a multi-member LLC, it might not be required that your LLC needs to be dissolved; however, it’s likely that your share is going to have to be probated. This means that whoever is appointed as the administrator or executor of your estate will become the fiduciary of your property upon your death. This probably doesn’t mean that the executor or administrator will be granted managerial or voting rights in the LLC, but they certainly have a financial right in the LLC that will ultimately be distributed to the heirs or beneficiaries of the estate. Could the LLC, which has just lost one of its members, provide this type of capital to the legally entitled estate on a whim? I would say most LLCs are not equipped or prepared for this. Again, the LLC is likely going to have to go through probate, which is not ideal.
The probate process for an LLC
What exactly does the probate process entail for an LLC? This is a lengthy and expensive process of transferring ownership. The process can take several months or even years. This delays the deceased member’s distribution to his or her loved ones. Court costs and attorneys fees will quickly add up. Depending on the particular jurisdiction, the probate court may require the company and its assets to be identified and appraised. The probate proceeding is usually public, so everyone has the opportunity to watch the business transformation unfold in public records. Maybe most importantly, the company is guaranteed to face even more strain in operating the LLC during the probate proceeding, especially after death.
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