When a business owner passes away, their loved ones are often left wondering what happens to the company — especially if it was formed as a Limited Liability Company (LLC). LLCs offer flexibility, but the death of an owner (also called a “member”) can raise complex legal and financial questions.
In this article, we’ll explain exactly what happens to an LLC when the owner dies, based on whether it’s a single-member or multi-member LLC, and how to ensure business continuity with proper planning.
Key Point: LLCs Are Separate Legal Entities
An LLC is a business structure that separates the owner’s personal and business assets. It also has continuity rules that can help determine what happens to the business after a member’s death.
However, what happens next depends on several factors:
- The LLC’s operating agreement
- The deceased member’s estate plan or will
- Whether the LLC had one or multiple members
- The laws of the state where the LLC was formed
If It’s a Single-Member LLC
If the LLC has only one owner (member) and that person dies:
- The LLC becomes part of the deceased member’s estate.
- The executor of the estate temporarily controls the LLC.
- If there is a will, the membership interest passes to the designated heir.
- If there is no will, the state’s intestate succession laws apply.
- The new owner can choose to:
- Continue the business
- Appoint a new manager
- Sell or dissolve the LLC
Important: Some states require an LLC to dissolve if there’s no succession plan in place. That’s why creating an operating agreement or estate plan is essential.
If It’s a Multi-Member LLC
If one member of a multi-member LLC dies:
- The LLC generally continues to operate, as long as there’s no provision requiring dissolution.
- The deceased member’s ownership interest passes to their estate or named heir.
- Remaining members may buy out the heir’s interest (if the operating agreement allows).
- The heir may receive only economic rights (like profit shares), not voting or management rights, unless approved by other members.
The operating agreement should outline buyout procedures, valuation methods, and succession planning to avoid disputes.
Role of the Operating Agreement
An LLC’s operating agreement is the most important document in determining what happens when an owner dies. It can include:
- Transfer-on-death (TOD) provisions
- Successor clauses or designees
- Buy-sell agreements among members
- Rules for valuation and ownership transfer
If there’s no operating agreement, state law and probate courts will determine the outcome — which can be slow, costly, and disruptive to the business.
Estate Planning Tools to Consider
If you’re an LLC owner, consider using the following estate planning strategies:
- Create a Will: Clearly state who inherits your LLC interest.
- Use a Trust: Place your LLC ownership in a revocable living trust to avoid probate.
- Add TOD Provisions: Specify what happens to your ownership upon death.
- Draft a Buy-Sell Agreement: Plan for transfer of ownership in the event of death, disability, or exit.
What Happens to Day-to-Day Operations?
After a member’s death:
- The executor or manager may run day-to-day business temporarily.
- Bank accounts may be frozen until legal ownership is clarified.
- Vendors, clients, and employees may need to be notified.
- Tax obligations and government filings must still be handled.
Having a clear succession plan in place helps the business continue with minimal disruption.
Final Thoughts
The death of an LLC owner doesn’t have to spell the end of the business — but only if the right planning is in place. Without an operating agreement or estate plan, ownership disputes, delays, and forced dissolution are real risks.
If you’re an LLC owner or planning to start an LLC, take the time to:
- Draft an operating agreement
- Establish a succession plan
- Talk to an estate planning attorney
- File your business with accurate state and IRS records
At FormLLC, we help entrepreneurs form LLCs, file EINs, draft operating agreements, and stay compliant. We also offer registered agent services and business planning tools to protect your LLC in case of unexpected life events.
