Ok so my business partner and I have a 50/50 LLC (goods retail, nothing fancy). He just had a health scare and now I'm freaking out about what happens if one of us kicks it. Does the dead person's spouse automatically get to run things? Do I have to buy them out? We never really talked about this. Please tell me I don't need a lawyer for a Reddit answer.
LLC succession
Who controls the business if an LLC member dies unexpectedly?
Sorry, you do need a lawyer. But the short version: check youur operating agreement. If it's silent, state law fills the gap, and it usually doesn't hand control to the spouse. The deceased member's estate becomes an assignee, meaning they get the economic share but not voting rights. That's the general rule, not legal advice, blah blah.
Not to be that guy but if you're 50/50 and he dies, you're stuck with his widow as a silent partner unless your operating agreement says otherwise. Source: watched my uncle go through this. It was a mess.
“Kicks it” 😂 anyway. The estate gets the membership interest. Who controlls the estate? Executor. So technically for a while you might be dealing with a random lawyer or his brother-in-law. Fun!
This is exactly why you need a buy-sell agreement. Not just for daeth but disability, divorce, etc. If you don't have one, get one before it's too late. And if he's already sick, you might be too late. Sorry.
We have an operating agreement but I honestly don't remember what it says. I think it just says we both have to agree on major decisions. That's probably bad, right?
Yeah, that's bad for this scenario. Pull it out and read it tonight. If it doesn't mention death or incapacity, you're in default state-law territory. Also check if it has a buyout formula.
Just to add: even if the spouse can't vote, they can still sue you for distributions and access to books. So 'control' is one thing, 'headache' is another.
Mossy is right. Also if you're 50/50, a deadlock is possible even when everyone's al ive. With an estate involved? Good luck.
I’m not a lawyer but I’ve seen this in a prior company. The estate gets a K-1 and you get to explain to the widow why she can’t come to the office. Awkward.
Honestly if the operating agreement is silent, most states default to assignee status. But “most” isn’t “all.” What state are you in?
We’re in Colorado. And yeah I’m gonna dig out the OA tonight.
Colorado follows the uniform act-ish. Assignee gets economic rights only. But if the agreement says nothing, you might have to wind up the LLC if one member dies? No, I think that’s only if the agreement says so. Don’t quote me. Get a lawyer.
Quietstorm is close. Under Colorado’s LLC Act (C.R.S. 7-80-702), if a member dies, their personal representative becomes an assignee unless the operating agreement says otherwise., So no automatic control. But you still need a buy-sell to avoid being stuck with the family indefinitely.
Also, what if the spouse wants to sell the interest to some random competitor? Assignee can transfer economic rights. You might wake up with a rival as an economic partner. Doesn’t control votes, but still a headache.
This thread is making me want to call my lawyer. And I don’t have a lawyer.
Honestly the best answer is: read your OA, then call a business attorney in Colorado. It’ll cost a few hundred bucks and save you a few thousand in therapy.