What Happens When an LLC Member Dies?

tombstoneA sudden death in a business can create discomfort as other partners struggle to figure out the new company ownership. In the case of single-member LLCs, a death can mean the end of the company. However, unlike sole proprietorships and partnerships, LLCs can survive beyond the deaths of their owners. Whether it does or not is determined by the LLC’s operating agreement.

Look for a provision in the operating agreement that discusses death of members. If there is no such provision, look for an area that discusses transferring ownership interest. A death should be treated as nothing more than a transfer of interests between the deceased member and the person who is that member’s rightful heir.

The member may have given his ownership interest in the LLC to someone else in his will. Unless the operating agreement prohibits or somehow conditions this, the transfer is legitimate. But even if the LLC is not named in the will, the deceased member’s next of kin will automatically inherit his ownership interest unless the operating agreement says otherwise.

Single-member LLCs follow the same rules. The owner’s named beneficiary or next of kin inherits the LLC unless the operating agreement specifically indicates that the LLC dies with the single member.