A limited liability company (LLC) is a business structure that shields the owners from personal responsibility for the company’s debts. If you have questions about LLC ownership, or if you are establishing a new LLC, ask a Texas LLC attorney for the help and the answers you may need.

If you are an LLC “member” (meaning an owner), what happens to your interest in the LLC after your death? What happens to an LLC after your death if you are the sole member? Keep reading this brief discussion of LLCs in Texas, and you will learn the answers to these questions.

If you plan to set up a limited liability company, or if you also need estate planning or business planning advice and services, schedule a consultation with a Texas LLC lawyer to discuss your goals and to receive the personalized legal advice and reliable legal services you may need.

Does an LLC’s Operating Agreement Address Business Succession?

Limited liability companies are comparable in some ways to corporations, but the legal requirements for LLCs are a bit less burdensome and daunting than the requirements for corporations.

Like a corporation, an LLC is a legally distinct entity, separate from its owners, who are called members. An LLC may be owned by one or more persons, a corporation, a trust, or another LLC. The rights of a member upon that member’s death may or may not be defined by the LLC’s operating agreement.

An operating agreement is the document that governs a limited liability company’s management and operations. An LLC’s operating agreement typically spells out how profits and losses are shared and under what circumstances the limited liability company will be dissolved.

A limited liability company’s operating agreement can provide for the incapacity or death of a member. An operating agreement may also address business succession matters such as the resignation of a member or the transfer of ownership to a new member.

When Interest in an LLC is Inherited

The operating agreement may stipulate, for example, that the other owners (or “members”) may purchase a deceased owner’s share of a limited liability company instead of allowing that share to pass to the owner’s heir.

If the decedent’s share is not purchased by one or more other members, depending on the operating agreement, the deceased member’s interest may pay to the beneficiary under the Last Will & Testament or to the heirs at law if the decedent did not have a valid Will. Complications could, and often do, arise upon the death of an LLC member.

One solution may be to transfer and assign the member’s interest to the member’s revocable living trust prior to death. If they successfully do this, then the membership interest should have a more seamless transition, but the member would need to get approval to do so and make sure that the transfer and assignment is allowed by the operating agreement and to follow the formal guidelines for making such transfer legally valid.

Typically, an LLC doesn’t dissolve with a member’s death, although several states (not including Texas) have laws that require an LLC to dissolve at that time. The LLC’s operating agreement may also have a clause requiring the LLC’s dissolution when a particular member dies.

Having a solid LLC operating agreement, understanding such agreement and working with a great Texas estate planning attorney can help reduce the likelihood for huge problems that may otherwise arise upon the death of a member.

What About LLCs With Only One Member?

In Texas, even when the last member of an LLC dies, it does not necessarily mean that the LLC must be dissolved. The LLC operating agreement should speak to dissolution procedures.

Single-member LLCs should have an operating agreement with a provision for transfer upon death. This is critical if you want your loved ones to inherit your LLC. When this provision is part of the operating agreement, your heirs may possibly be able to avoid probate and inherit the LLC’s ownership. However, the preferred manner is typically to have such membership interest transferred to the decedent’s revocable living trust prior to death.

An LLC’s operating agreement should spell out what must happen in order for a limited liability company to be dissolved and what steps must be taken. If there is no provision in the agreement, the Texas Business Organizations Code specifies what must be done for an LLC to be dissolved.

What Else Should You Know About LLCs?

Most small businesses in the United States today are LLCs. In Texas, establishing a limited liability company requires the advice and services of a Texas LLC attorney who has abundant experience with business formation and with setting up limited liability companies.

If you own a partnership or a sole proprietorship, establishing an LLC is an effective strategy for shielding your assets from liability claims and creditors. If the LLC goes bankrupt or ends up on the losing side of a lawsuit, the personal assets of the owner or owners are shielded.

With this in mind, forming a limited liability company rather than a partnership or a sole proprietorship may be the better choice if your own business carries even a slight risk of liability.

A variety of factors, including your current personal financial situation and your long-term goals, need to be taken into account when you determine – with your attorney’s help – whether you should establish a limited liability company.

What Else Can an LLC Do for You?

Limited liability company members may transfer personal property and assets into the LLC, and property owners sometimes transfer real estate into a limited liability company as an asset protection strategy.

If you own property in Texas, a Texas business or estate planning lawyer can help you set up a limited liability company and help you transfer properties and assets into that company for their protection.

How Will an Attorney Assist You?

If you are starting up any new business in Texas, you will want and need the counsel of a Texas business lawyer who is experienced with a variety of business entities and business types.

In addition to helping you establish an LLC, a Texas LLC lawyer will help you create an operating agreement that, among other things, specifies exactly what happens to the LLC after you pass away.

A poorly written LLC operating agreement can end up costing tens of thousands or even hundreds of thousands of dollars or more. Don’t go cheap when creating an LLC and solid operating agreement. We’ve seen too many LLC’s that get tied up in costly and emotional litigation. Further, many LLC’s may be extremembly valuable only to lose all, or mostly all, of their value upon the death of the member. Why? If only the member had authority to manage the bank accounts, then which employees will stick around and keep working if they can’t be paid until a court approves an executor/administrator of the estate?

An LLC lawyer will answer all of your questions and will address all of your concerns about establishing an LLC. In the years ahead, an LLC attorney will be available to advise you regarding any and all legal aspects of maintaining and operating your limited liability company.

The right LLC attorney will also help you with your business planning and estate planning needs. To learn more about LLCs, to set up a limited liability company in Texas, or to begin the business planning or estate planning process, consult an LLC lawyer promptly.