ABA SECTION OF BUSINESS LAW
Institute for the Young Business Lawyer
LLCs and the Rest of the World
April 14, 2011

Overvie...
1.

Does the LLC Dissolve upon the Death of a Member?

Delaware
§ 18-801 (b) Unless otherwise provided in the limited liab...
2.

Does the LLC Dissolve upon the Death of its only Member?

Delaware
§ 18-801 (a) A limited liability company is dissolv...
3.

Who (if anyone) votes the deceased Member's Interest?

Delaware
§ 18-705: Powers of estate of deceased or incompetent ...
4.

Does the deceased Member's estate have the right to receive distributions?

Washington
25.15.220. Distribution on even...
Upcoming SlideShare
Loading in …5
×

Overview the impact of death of a member on an LLC

3,374
-1

Published on

Overview of the impact on an LLC in the event of a member's death in various states including Delaware, New York, Massachusetts and the state of Washington.

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
3,374
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
27
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Overview the impact of death of a member on an LLC

  1. 1. ABA SECTION OF BUSINESS LAW Institute for the Young Business Lawyer LLCs and the Rest of the World April 14, 2011 Overview: The Impact of Death of a Member on an LLC By: David C. Tingstad of Beresford Booth PLLC Edmonds, Washington Historically, LLC statutes provided that upon a member's death the LLC would dissolve unless the LLC business was continued by the vote of remaining members. The remaining members typically were required to vote to continue the business within 30 to 120 days from the date of the member's death. This type of statute had critical tax importance relating to the entity's classification as a partnership rather than its tax classification as a corporation. However, following the IRS simplification of the tax classifications of LLCs, state legislatures have gradually amended their LLC statues to eliminate requirements that an LLC dissolve upon a member's death. Of course, most LLC statues allow members to agree in their LLC Agreement to require dissolution following death. Additionally, because of the recognition of single member LLC, state legislatures have also begun addressing the question of dissolution of the LLC upon the death of the last member (Colorado and Delaware in particular). The purpose of this article is to identify the impact on the LLC in the event of a member's death, analysis a number of state's LLC Acts.
  2. 2. 1. Does the LLC Dissolve upon the Death of a Member? Delaware § 18-801 (b) Unless otherwise provided in the limited liability company agreement, the death, retirement, resignation, expulsion, bankruptcy or dissolution of any member or the occurrence of any other event that that terminates the continued membership of any member shall not cause the LLC to be dissolved or its affairs to be wound up, and upon the occurrence of any such event, the limited liability company shall be continued without dissolution. New York § 701. Dissolution (b) Unless otherwise provided in the operating agreement, the death, retirement, resignation, expulsion, bankruptcy or dissolution of any member or the occurrence of any other event that terminates the continued membership of any member shall not cause the limited liability company to be dissolved or its affairs to be wound up, and upon the occurrence of any such event, the limited liability company shall be continued without dissolution, unless within one hundred eighty days following the occurrence of such event, a majority in interest of all of the remaining members of the limited liability company or, if there is more than one class or group of members, then by a majority in interest of all the remaining members of each class or group of members, vote or agree in writing to dissolve the limited liability company. Massachusetts § 43. Dissolution of limited liability company (4) with respect to a limited liability company formed prior to January 1, 1997, except as provided in a written operating agreement, the death, insanity, retirement, resignation, expulsion, bankruptcy or dissolution of a member or the occurrence of any other event which terminates the membership of a member in the limited liability company unless the business of the limited liability company is continued either by the consent of all the remaining members within ninety days following the occurrence of any such event or pursuant to a right to continue stated in a written operating agreement; Washington 25.15.130. Events of dissociation (1) A person ceases to be a member of a limited liability company, and the person or its successor in interest attains the status of an assignee as set forth in RCW 25.15.250(2), upon the occurrence of one or more of the following events: (a) The member dies or withdraws by voluntary act from the limited liability company as provided in subsection (3) of this section; (3) A member may withdraw from a limited liability company at the time or upon the happening of events specified in and in accordance with the limited liability company agreement. If the limited liability company agreement does not specify the time or the events upon the happening of which a member may withdraw, a member may not withdraw prior to the time for the dissolution and commencement of winding up of the limited liability company, without the written consent of all other members at the time. THE IMPACT OF DEATH OF A MEMBER ON AN LLC Page 2 of 5
  3. 3. 2. Does the LLC Dissolve upon the Death of its only Member? Delaware § 18-801 (a) A limited liability company is dissolved and its affairs shall be wound up upon the first to occur of the following: (4) At any time there are no members; provided, that the limited liability company is not dissolved and is not required to be wound up if: a. Unless otherwise provided in a limited liability company agreement, within 90 days or such other period as is provided for in the limited liability company agreement after the occurrence of the event that terminated the continued membership of the last remaining member, the personal representative of the last remaining member agrees in writing to continue the limited liability company and to the admission of the personal representative of such member or its nominee or designee to the limited liability company as a member, effective as of the occurrence of the event that terminated the continued membership of the last remaining member; provided, that a limited liability company agreement may provide that the personal representative of the last remaining member shall be obligated to agree in writing to continue the limited liability company and to the admission of the personal representative of such member or its nominee or designee to the limited liability company as a member, effective as of the occurrence of the event that terminated the continued membership of the last remaining member, or b. A member is admitted to the limited liability company in the manner provided for in the limited liability company agreement, effective as of the occurrence of the event that terminated the continued membership of the last remaining member, within 90 days or such other period as is provided for in the limited liability company agreement after the occurrence of the event that terminated the continued membership of the last remaining member, pursuant to a provision of the limited liability company agreement that specifically provides for the admission of a member to the limited liability company after there is no longer a remaining member of the limited liability company. New York § 701. Dissolution (a) A limited liability company is dissolved and its affairs shall be wound up upon the first to occur of the following: (4) at any time there are no members, provided that, unless otherwise provided in the operating agreement the limited liability company is not dissolved and is not required to be wound up if, within one hundred eighty days or such other period as is provided for in the operating agreement after the occurrence of the event that terminated the continued membership of the last remaining member, the legal representative of the last remaining member agrees in writing to continue the limited liability company and to the admission of the legal representative of such member or its assignee to the limited liability company as a member, effective as of the occurrence of the event that terminated the continued membership of the last remaining member; Washington 25.15.185. Loss of sole remaining manager In the event of the death, resignation, or removal of the sole remaining manager, or if one of the events described in RCW 25.15.130(1) (d) through (i) occurs with regard to the sole remaining manager, and unless the limited liability company agreement provides otherwise, the limited liability company shall become member-managed unless one or more managers are appointed by majority vote of the members within ninety days after the occurrence of such an event. THE IMPACT OF DEATH OF A MEMBER ON AN LLC Page 3 of 5
  4. 4. 3. Who (if anyone) votes the deceased Member's Interest? Delaware § 18-705: Powers of estate of deceased or incompetent member If a member who is an individual dies or a court of competent jurisdiction adjudges the member to be incompetent to manage the member's person or property, the member's personal representative may exercise all of the member's rights for the purpose of settling the member's estate or administering the member's property, including any power under a limited liability company agreement of an assignee to become a member. If a member is a corporation, trust or other entity and is dissolved or terminated, the powers of that member may be exercised by its personal representative. New York § 608. Powers of estate of a deceased or incompetent member If a member who is a natural person dies or a court of competent jurisdiction adjudges him or her to be incompetent to manage his or her person or his or her property, the member's executor, administrator, guardian, conservator or other legal representative may exercise all of the member's rights for the purpose of settling his or her estate or administering his or her property, including any power under the operating agreement of an assignee to become a member. If a member is a corporation, trust or other entity and is dissolved or terminated, the powers of that member may be exercised by its legal representative or successor. Massachusetts § 42. Death or incompetence of member Unless otherwise provided in the operating agreement, if a member who is an individual dies or a court of competent jurisdiction adjudges him to be incompetent to manage his person or his property, the member's executor, administrator, guardian, conservator or other legal representative may exercise all of the member's rights for the purpose of settling his estate or administering his property, including any power under the operating agreement of an assignee to become a member. Unless otherwise provided in an operating agreement, if a member is a corporation, trust or other entity and is dissolved or terminated, the powers of that member may be exercised by its legal representative or successor. California § 17304. Individual members who are deceased or adjudged incompetent; corporate or other entity members dissolved or terminated; property rights (a) If a member who is an individual dies or is adjudged by a court of competent jurisdiction to be incompetent to manage the member's person or property, the member's executor, administrator, guardian, conservator, or other legal representative may exercise all of the member's rights for the purpose of settling the member's estate or administering the member's property, including any power the member had under the articles of organization or an operating agreement to give an assignee the right to become a member. (b) If a member is a corporation, trust, or other entity and is dissolved or terminated, the powers of that member may be exercised by its legal representative or successor. THE IMPACT OF DEATH OF A MEMBER ON AN LLC Page 4 of 5
  5. 5. 4. Does the deceased Member's estate have the right to receive distributions? Washington 25.15.220. Distribution on event of dissociation Unless otherwise provided in the limited liability company agreement, upon the occurrence of an event of dissociation under RCW 25.15.130 which does not cause dissolution (other than an event of dissociation specified in RCW 25.15.130(1)(b) where the dissociating member's assignee is admitted as a member), a dissociating member (or the member's assignee) is entitled to receive any distribution to which an assignee would be entitled. 5. Does the deceased Member's estate have the continue liability to contribute capital to the LLC? Delaware § 18-502 (a). Liability for contribution Except as provided in a limited liability company agreement, a member is obligated to a limited liability company to perform any promise to contribute cash or property or to perform services, even if the member is unable to perform because of death… New York § 502. Liability for contributions (a) Except as provided in the operating agreement, a member is obligated to the limited liability company to perform any promise to contribute cash or property or to perform services that is otherwise enforceable in accordance with applicable law, even if he or she is unable to perform because of death, disability or any other reason. § 605. Liability upon assignment Whether or not an assignee of a membership interest becomes a member, the assignor of a membership interest is not released from any liability under this chapter or the operating agreement, except liabilities that arise after the effectiveness of the assignment and are pursuant to section two hundred ten of this chapter, section five hundred eight of this chapter or, in the event the assignee becomes a member, unless otherwise provided in the operating agreement, section five hundred two of this chapter. Massachusetts § 28. Members' obligations to limited liability company (a) Except as provided in a written operating agreement, a member is obligated to a limited liability company to perform any promise to contribute cash or property or to perform services, even if he is unable to perform because of death……. Washington 25.15.195. Liability for contribution (1) Except as provided in a limited liability company agreement, a member is obligated to a limited liability company to perform any promise to contribute cash or property or to perform services, even if the member is unable to perform because of death….. THE IMPACT OF DEATH OF A MEMBER ON AN LLC Page 5 of 5

×