As a Texas resident, you may have established a limited liability company (LLC) for your business. But what happens to that LLC when you die? For the business to continue operating, it will need to be passed on to someone else or dissolved. It’s important that you understand the rules and regulations governing the transfer of a Texas LLC so that you can plan ahead and ensure the future of your business.
Transferring Your Texas LLC Upon Death
When you pass away, there are several issues to consider with your Texas LLC. First, the LLC’s operating agreement should generally specify what happens upon the death or incapacity of an LLC’s member. Depending on the operating agreement’s language, the LLC may be transferred to your estate, transferred to the remaining membership, or dissolved.
Second, if the LLC has a single member (i.e., you), your membership interest will more than likely transfer according to your estate plan. That is, your estate (through your estate’s representative) will be admitted to the LLC’s membership and be entitled to the economic rights and management of the LLC. Your estate may continue to operate the business and ultimately wind up the business. Additionally, if the LLC has multiple members, the operating agreement may specify that the remaining members are required to purchase your membership interest.
Third, if the LLC is intended to be dissolved, your estate will need to complete all necessary paperwork in order to dissolve and transfer the assets of the LLC. This includes filing a Certificate of Termination with the Texas Secretary of State, distributing assets according to any outstanding contracts or agreements, and notifying creditors of any changes in ownership.
It’s important that you understand certain other implications related to your LLC. Depending on how assets are distributed after death, certain taxes may apply (e.g., gift and/or estate taxes). Additionally, it’s important to consider the potential impact of your marriage. Unless the LLC’s operating agreement specifies otherwise, your membership may be considered community property (i.e., your spouse has certain rights/ownership in the company). It’s a best practice to consult with an attorney who understands the impact of a member’s death on your Texas LLC, so you can ensure that your LLC is properly handled after you pass.
Planning for what happens after your passing is essential to ensuring that your legacy lives on through your business ventures even after you're gone—and it's especially important when dealing with a Texas-based LLC. By understanding applicable laws and practical considerations, you can incorporate business succession planning in your overall estate plan. You should seek professional advice to appropriately deal with your business, your estate, and any federal tax obligations.
Contact Provident Legal Counsel today to discuss your case and legal options. Schedule a Consultation or call (214) 432-6100.