Death is the one eventuality for which all individuals must account. Even as limited liability companies (“LLCs”) are now the most commonly used form for new business organizations, most participants therein fail to appreciate that absent express agreement set forth in the operating agreement, upon death their heirs do not succeed to any rights to participate in management even as those heirs seldom have an opportunity to liquidate the investment. This article will review the default treatment under the various LLC acts and explore a variety of approaches that may be taken in an operating agreement to alter the default treatment.
A famous adage teaches us that neither death nor taxes may be avoided. Whether this is true is open to debate. One can at least conceptualize a life that does not generate taxable income and where an exemption from property taxation exists.
Conversely, death is truly unavoidable. With respect to natural persons, it appears that life spans cannot extend beyond some 125 years. While business organizations as well are subject to varieties of death including voluntary, judicial, and administrative dissolution as well as bankruptcy, the focus of this article is upon the death of a business owner and the resultant impact on the owner’s relationship to the organization.