What Happens To My LLC When I Die?
If you have an LLC for a business venture, it is most likely because you want to protect your personal assets from your business activities. An LLC is a business entity that separates your business life from your personal life. But what happens to your LLC when you die?
What Is an LLC?
A limited liability company, or LLC, is a business entity recognized by your state. You file articles of organization for your LLC and receive a certificate of formation with a formation date and a file number for your LLC.
What Are the Benefits of an LLC?
Limited liability companies are a hybrid of a corporate entity offering personal liability protection and a sole proprietorship offering a flexible tax structure. When you have an LLC, all business debts, lawsuits, and claims stay in the LLC. The business owner of the LLC does not put their personal assets at risk. And the business owner can report business profits or losses on their individual tax return, avoiding double taxation on the LLC revenue.
LLCs are also relatively easy to operate and with less paperwork and requirements than corporations. For this reason, LLCs are a beneficial business entity for a sole owner or partnership. Depending on your state's requirements, you file annual (or biennial) filing reports to the state along with the filing fees. However, LLCs do not need to keep corporate minutes or bylaws. Small businesses often choose an LLC as their preferred business structure.
What Is the Difference Between a Single-Member LLC (SMLLC) And a Multi-Member LLC (MMLLC)?
A single-member LLC has a sole member or owner. A multi-member LLC has more than one member and may have more than one manager who makes the day-to-day decisions about the business.
A member-managed LLC means all the members take part in running the business operations. A managed-member LLC has designated decision-makers who are also members of the LLC (but the LLC may also hire non-members as managers). If you have passive investors, you have a managed-member LLC.
What Happens to My LLC When I Die?
Several factors determine the future of your LLC upon your death. These factors include examine whether:
- Your LLC is a single-member or multi-member LLC
- You have a business succession plan in your LLC operating agreement
- You have done any estate planning
If you have a single-member LLC, meaning you are the sole member and owner, and pass away, your LLC dissolves, and any assets pass by the terms of your will (or by state law if you don't have a will). In your will, you can direct who will inherit the proceeds of your LLC. Under state intestacy laws, your heirs (immediate family members and next of kin) will inherit.
However, your LLC operating agreement could include a succession plan for when you die. You name a person or organization to continue running the LLC operations after your death.
If you are a member of a multi-member LLC, your LLC does not necessarily dissolve. Since there are other members and managers, the business operations could continue. One of the most critical provisions in an LLC operating agreement is how to handle the death of a member.
There are several options that allow a business to continue when a member diessuch as:
- The deceased member's heirs or other beneficiaries could inherit the member's ownership interest with the same powers as the managing members.
- The deceased member's heirs or other beneficiaries could inherit the deceased member's interest but have no voting rights or say in the management. The surviving members continue to control and manage the LLC.
- The remaining members could pay the deceased member's heirs or beneficiaries a fair market value for the member's shares or for an agreed-upon price, called a “buy out."
Forming an LLC is important for organizing your business and protecting your personal assets. However, it is equally important to plan for what will happen to your business if you die or become incapacitated. Not only should you outline a plan in your LLC operating agreement, but you should also consider your LLC when you are estate planning.
Don't leave it to your loved ones to sort out your business interests in probate court. Fortunately, making your LLC part of your last will and testament with FindLaw Legal Forms & Services is easy.
- All About LLCs (FindLaw's Learn About the Law)
- Making LLC Operating Agreements (FindLaw's Learn About the Law)
- LLC Business Formation Made Simple (FindLaw Legal Forms & Services)
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
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