Single Member Limited Liability Companies (LLC) - Planning for Transition

Are you a member of a single-member LLC or one which may become a single-member LLC? Do you have a plan for transition of membership interests? Have you considered the following:

• Who has the authority to access the company’s bank accounts?

• Who is empowered to conduct business on behalf of the company?

• Who can vote, make decisions on behalf of, and manage the company?

• Who has the authority to bind the company?

Unlike in corporations, membership interests in LLCs are not generally freely transferrable. This means that the consent of a majority, super-majority, or all of members is typically required to allow another member to be admitted to an LLC. If the last member is deceased, there is no one to admit a new member to transact business on behalf of the LLC, leaving the LLC with no one legally empowered or entitled to transact business on behalf of the company, or even to access funds which would otherwise have been available for distribution from the company. Addressing these issues is critical for small LLCs.

Most of my clients are surprised to learn that they are not able to transfer the management and control associated with their membership interests using estate planning devices, such as their wills. Most clients are also shocked that, except for one narrow exception, Louisiana law does not provide a statutory solution for this problem.

So, what can you do to plan for this situation? Consult with your attorney to devise a transition plan to ensure the smooth transition of your closely-held limited liability company.