Can a will give my business interest to my son if the LLC operating agreement says otherwise?
Short answer
Usually no — a last will and testament can transfer your economic interest in an LLC (the right to receive distributions and proceeds), but it generally cannot unilaterally override the LLC operating agreement’s rules about membership, transfers, or admissions. The operating agreement and North Dakota law typically control whether a transferee (including an heir under a will) becomes a member with management and voting rights, or only receives money from the interest.
Detailed answer — how this works under North Dakota law
Two separate legal concepts are involved:
- Estate transfer of property: A will can pass the decedent’s property interests to beneficiaries. Membership interests in an LLC are property, so the will can direct that your interest go to your son.
- LLC governance and membership rules: The LLC operating agreement is a contract among members that normally governs transfer restrictions, admissions of new members, buy‑sell or redemption rules on a member’s death, and whether a transferee gains management rights. Under typical LLC law, a transferee who receives a member’s interest by will gets the decedent’s economic or “transferable” interest (distributions and liquidation proceeds) but does not automatically obtain management or voting rights unless the operating agreement or the other members allow admission.
In practice, that means:
- If the operating agreement contains a clause that restricts transfer on death (for example, a right of first refusal, a mandatory buyout, or a requirement that surviving heirs be approved by the remaining members), that clause will generally be enforced. Your will cannot ignore or nullify those contractual restrictions.
- If the operating agreement is silent about death and transfer, state LLC law and the agreement’s default provisions will apply. In many jurisdictions the default rule is that the heir receives only the right to distributions, while membership and management participation require the consent of the remaining members.
- If the operating agreement explicitly says a member’s interest passes to heirs and the heir is admitted as a member on death (or automatically becomes a member), then the will can pass membership rights consistent with that agreement.
North Dakota statutes and the LLC governing law support enforcing operating agreements and protecting the contract expectations of other members. For the official North Dakota code, see the North Dakota Century Code at https://www.legis.nd.gov/cencode (search the chapters on limited liability companies and decedents’ estates for specific provisions that may apply).
Typical scenarios (hypotheticals)
Hypothetical A — Operating agreement contains a buyout-on-death clause:
Sam’s operating agreement requires that when a member dies the company must buy the decedent’s interest at a formula price within 120 days. Sam’s will leaves his interest to his son. Result: The son receives the buyout payment (economic value) but generally is not admitted as a member unless the other members agree.
Hypothetical B — Operating agreement is silent on death:
Lee’s operating agreement does not mention death or transfer. Lee wills the interest to her daughter. Under common LLC rules, the daughter can collect distributions that would have gone to Lee (economic interest) but may need the consent of the other members to become a voting/management member.
Practical consequences
- Your son may get the money that would flow from the interest (distributions, liquidation share) even if he cannot sit on the LLC board or vote.
- If you want your son to become a full member with management rights, you must ensure the operating agreement permits that admission (or get the members’ agreement now) or change the operating agreement while you are alive.
- If your operating agreement imposes a buy‑sell, right of first refusal, or mandatory redemption on death, the estate will likely be bound by those terms and the transferee may receive cash instead of membership.
What you should do now — practical steps
- Obtain the operating agreement and read the death, transfer, buy‑sell, and admission clauses. These terms usually control.
- Check whether the LLC has any separate buy‑sell or shareholder agreements that affect transfers on death.
- Talk to the other members early if you want your son admitted as a member — get written consents or amend the operating agreement now if possible.
- Discuss estate planning options that can work with LLC rules: an LLC buy‑sell funded by life insurance, a transfer‑on‑death designation if permitted, or placing the interest in a revocable trust that names your son as beneficiary (and coordinate trust language with the operating agreement).
- Have your executor or personal representative notify the LLC promptly after death and follow the operating agreement’s procedures for valuation, buyout, or admission.
- Consult a North Dakota attorney experienced in LLCs and estate planning to prepare documents and coordinate probate and business rules.
Helpful hints
- Review the operating agreement first — it usually governs transfer on death.
- Look for terms titled: transfer restrictions, death or withdrawal of a member, rights of first refusal, mandatory redemption, valuation method, and admission of transferees.
- If you want a smooth transfer to a family member, amend the operating agreement now and get written consent from other members.
- Consider lifetime planning (gifts or sales while living) to avoid probate complications and potential forced buyouts after death.
- Keep estate documents and the LLC’s governing documents in the same place and tell your executor where they are.
- Tax and liquidity issues matter — if the company must buy out the estate, the company needs cash or financing; plan ahead (life insurance is a common solution).
- Record any admission of a new member and update company records and filings with the North Dakota Secretary of State if required.
For North Dakota statutory materials and to look up the exact language that may apply to LLCs and wills, start at the North Dakota Century Code: https://www.legis.nd.gov/cencode. For business filings and additional information on entity records, see the North Dakota Secretary of State: https://sos.nd.gov.