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What Happens to a Company When a Manager of an LLC Dies?

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If you have worked hard to create a successful business, the intention may be for that business to carry on after you are gone. Whether it supports your family after you pass, or whether you intend for your family to actually operate the business, succession planning is something that you should plan for right now.

Business succession planning falls between the cracks of business law, and estate planning law. But if you’re a businessperson, there are things you can do from a business standpoint, to protect your business.

 The Death of a Manager

Limited Liability Companies can be particularly difficult, because by law, when an owner or manager passes away, that person’s relatives will inherit his or her interest in the LLC (assuming it is a multi member LLC). This can be problematic; other owners or managers in the LLC may not want to work with whomever your beneficiaries may be.

Yoru beneficiaries, ending up with your share of the LLC, may know little about your business; they may not know how to run it or operate it. Some may not even care to do any work for the LLC, opting instead to reap the profits of ownership or management left to them after you have passed. This can create conflict with the other owners of the LLC, who need an active, working co-manager or partner in the LLC to operate.

 Look at Your Corporate Documents

One strategy is to have a pre-set buyout amount in your corporate documents, such as your management agreement.

Your governing documents in the LLC can say that the other owners of the LLC can buy out any successor owner for a pre-set price. This allows (1) Your beneficiaries to receive value for your share or interest in the business (2) other owners to not be forced to work with someone they may not want to work with and (3) avoidance of fighting over the value of partial ownership of the LLC, given that the price has already been pre-set.

Of course, the value of ownership in an LLC can fluctuate over time. That means that a formula or percentage figure or some other way of determining the buy back value that is flexible, should be used to determine the buyout amount.

 Other Options

The reverse can happen also–you can have a provision that allows your beneficiaries to buy out the other partners or owners in the LLC. Alternatively, you can allow your beneficiaries to take over your interest in the LLC, with limitations on their powers, authority, or the amounts they receive from the LLC going forward.

 Dissolving the LLC

You also could be more drastic about it, with a pre-arranged dissolution of the LLC upon the death of a manager or owner.

Some LLCs do say that in the event of the death or divorce or bankruptcy of a manager, that the entire LLC must cease operations. This would involve the sale of assets, and liquidation of property, with profits being divided amongst the managers or owners.

Call the West Palm Beach business litigation lawyers at Pike & Lustig today to review your corporate documents, and to help with your business’ succession plan.




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