The rules surrounding the death of a partner or a shareholder are familiar to most practitioners. For general partnerships governed by New York’s Uniform Partnership Act, except as otherwise provided by agreement, a partner’s death automatically triggers dissolution and liquidation, unless the surviving partners continue the business in which event they are required to pay the estate the fair market value of the deceased partner’s interest. (The rules are different in states that have enacted the Revised Uniform Partnership Act.)
For close corporations, except as otherwise provided by agreement, the deceased stockholder’s shares may freely be transferred to his or her heirs as provided by will or intestacy laws, in which event the transferee (and, in the interim, the estate representative) possesses the full panoply of voting and other statutorily enshrined rights including the right to bring a shareholder’s derivative action and the right to petition for judicial dissolution.
What about limited liability companies? Are the rules that apply following the death of an LLC member more like those for partnerships or corporations?
The answer is, neither. LLCs have their own, distinct, statutory default rules applicable when a member dies. In addition, as illustrated by a recent decision discussed below, the disposition and rights associated with the membership interest of a deceased member are uniquely amenable to the preferences of the LLC members as expressed in the operating agreement.