Disclaimer: This is educational information only and not legal advice. Consult a Michigan attorney about your LLC and estate planning to apply the rules to your situation.
Detailed answer — What happens to an LLC member’s share if the operating agreement is silent?
Short answer: Under Michigan law, if your LLC operating agreement does not say what happens when a member dies, default rules in the Michigan Limited Liability Company Act will control. Typically the deceased member is treated as having dissociated from the company; the decedent’s estate or heirs usually inherit the economic (financial) interest but do not automatically step into the member’s management or voting rights without the other members’ consent. The estate or transferees may be entitled to distributions and possibly a buyout, but they usually cannot participate in management unless the remaining members admit them as members.
How Michigan law fills the gap
The Michigan Limited Liability Company Act (Michigan Compiled Laws, chapter 450) sets out default rules for member dissociation, transfer of transferable interests, and buyouts when an operating agreement is silent. See Michigan Compiled Laws (MCL) chapter 450 for the statutory text: MCL Chapter 450 (Limited Liability Companies).
Key default concepts that typically apply:
- Dissociation on death. A member’s death is normally an event of dissociation. That ends the decedent’s rights to participate in management (voting and control).
- Transferable (economic) interest. The decedent’s personal representative or heirs generally receive the decedent’s transferable interest — the right to receive distributions and allocations of profits/losses — but that transferee is usually an assignee only, not automatically a full member with management rights.
- Admission as a member requires consent. For the heir or estate to become a full member (gain voting/management powers), the remaining members must typically vote or otherwise consent under the act or company rules.
- Buyout and valuation. The company or remaining members may have a statutory right or option to buy out the decedent’s membership interest (or the estate may require a buyout). The default statute sets out how fair value is determined if the operating agreement is silent.
- Dissolution risk. If an operating agreement or statute requires unanimous consent to continue and cannot be secured after a member’s death, the LLC could face dissolution unless members agree to continue.
Common practical steps after a member dies (if the operating agreement is silent)
- Locate the operating agreement, articles of organization, and any buy-sell or shareholder agreements. Even if the operating agreement appears silent, other documents may control the outcome.
- Identify whether the decedent left a will or trust and who the personal representative or successor trustee is. That person typically handles the decedent’s transferable interest.
- Notify the LLC and other members in writing. Prompt communication prevents surprise distributions or management disputes.
- Determine whether the estate wants economic value only or seeks admission as a member. If the estate wants management rights, the estate will usually need member approval to be admitted.
- Arrange valuation and accounting. If a buyout is required or proposed, obtain a business valuation and determine the value of the decedent’s economic interest per the LLC’s rules or statutory default valuation method.
- Consider probate and tax consequences. The transfer of economic interest may pass through probate. Also consider potential estate tax, gift tax, and the LLC’s tax classification implications.
- Amend the operating agreement going forward. Members commonly add death, disability, and buy-sell terms to prevent future uncertainty.
Examples of how this plays out
Hypothetical A — Heirs receive money but not control: John is a 30% member of a Michigan LLC. He dies with no provision in the operating agreement. Under default rules, John’s estate receives his right to future distributions (the economic interest). The estate does not get voting power unless the other members vote to admit the estate as a member. The members may negotiate a buyout so the estate receives cash instead.
Hypothetical B — Member admission by consent: Maria is a 40% member who dies. Her will leaves her interest to her child, who the remaining members approve. The child becomes a full member with management rights only because the members consented; otherwise the child would be an assignee for distributions only.
What the estate or heirs should do first
- Get a certified copy of the death certificate.
- Have the personal representative or executor review the LLC’s formation documents and any amendments.
- Contact the LLC to clarify the member’s status and any immediate distribution or tax matters.
- Seek counsel from an attorney experienced in Michigan LLCs and probate to protect the estate’s rights and to negotiate admission or buyout terms.
Helpful hints
- Don’t assume an heir automatically becomes a co-owner with management authority. Default Michigan law usually separates economic rights from management rights.
- Check for buy-sell or death clauses in any other company documents (side agreements, member resolutions).
- Act quickly to preserve evidence of ownership, member votes, and financial records. Disputes worsen with delay.
- If you are a current member, consider adding clear death and buyout language to the operating agreement now to avoid probate delays and family conflict later.
- If you are an heir, get legal and tax advice before agreeing to any proposed buyout or admission; valuation and tax pressure can produce low offers.
- Expect the probate process to affect timing. If the interest passes through probate, distributions or transfers may be delayed until the estate process advances.
- If the LLC has multiple members, a neutral business valuation professional can reduce fights over price.
For the exact statutory text, see Michigan’s Limited Liability Company statutes: MCL Chapter 450 (Limited Liability Companies). For probate procedures and executor responsibilities, consult Michigan Courts’ probate resources and the Michigan Department of Licensing and Regulatory Affairs for business filing matters.
Because an operating agreement that is silent about death can create expensive uncertainty, most members address death and buyout procedures in advance. Talk with a Michigan business or probate attorney to draft clear provisions that match your goals.