Detailed Answer
This section explains, under South Carolina law, the typical steps and legal concepts that apply when a person dies owning the sole membership interest in a limited liability company. This is educational only and not legal advice.
1. How ownership passes immediately at death
When the sole member of a single-member LLC dies, the deceased person’s ownership interest is an asset of the decedent’s estate. Who receives that interest depends on the decedent’s estate planning documents (will, trust, beneficiary designation) or, if there is no valid will, South Carolina’s intestacy rules. The estate representative (personal representative or executor) steps into the decedent’s shoes to transfer estate assets through probate or pursuant to a probate-exempt process if available. For South Carolina probate rules see the Probate Code: https://www.scstatehouse.gov/code/t62.php.
2. Distinguish “economic” rights from “membership” (management) rights
Under most LLC laws, including South Carolina’s LLC Act, an ownership interest has two core components: (1) economic or transferable interest (right to distributions and share of profits/losses) and (2) membership rights (voting, management, admission as a member). A mere transfer of the deceased’s membership interest to an heir or buyer will often give the transferee the economic rights automatically, but it may not automatically give the transferee membership/management rights unless the LLC’s governing documents or the LLC itself admits the transferee as a member.
For the South Carolina Uniform Limited Liability Company Act, see Chapter 44 of Title 33: https://www.scstatehouse.gov/code/t33c044.php. That chapter governs how interests may be transferred and how members are admitted.
3. Practical steps the personal representative or heir should take
- Find the operating agreement and articles of organization. These documents often contain transfer restrictions, buy-sell provisions, or required procedures for admitting a new member. Follow them. If the LLC has a buy-sell clause, it may require the estate to offer the interest to the LLC or a third party before transferring to an heir.
- Open probate (if required). The personal representative should obtain letters testamentary or letters of administration from the probate court. Those letters provide authority to transfer the decedent’s assets, including an LLC interest. South Carolina probate resources: https://www.scstatehouse.gov/code/t62.php.
- Determine whether the heir will receive full membership (management) rights or only economic rights. If the operating agreement or articles require consent of the LLC or other members to admit a transferee, the estate should seek that consent or follow the specified admission process.
- Record the transfer in the LLC’s records. Even when state filings do not require listing members, maintain a written amendment to the operating agreement or a membership ledger entry showing the new owner and any change in membership status.
- Update third parties. Notify banks, clients, vendors, lenders, and the South Carolina Secretary of State or registered agent as needed. Visit the South Carolina Secretary of State business filings portal for corporate filing and agent changes: https://sos.sc.gov.
4. Common outcomes and choices
- Heir becomes the new sole member and manager. If the heir inherits the entire membership interest and the LLC (or operating agreement) does not prevent admission, the heir can be admitted as the new member. Update the operating agreement and company records to reflect that admission.
- Heir holds only economic rights (no management vote). If the operating agreement says a transferee gets only distribution rights until admitted, the heir may be entitled to profit distributions but not to manage the LLC unless admitted per the agreement.
- Buyout or liquidation. The estate or heirs may sell the interest or cause the LLC to buy the interest if buy-sell terms exist or the parties negotiate a sale. The LLC can also be dissolved and its assets distributed, if that is the agreed path.
5. Filing, taxes, and other technical items
- State filing: South Carolina generally does not require member names in the articles of organization, but you may need to file changes to the registered agent or any amended articles if the LLC’s structure changes. Check the South Carolina Secretary of State: https://sos.sc.gov.
- Federal tax and EIN: The IRS has rules about entity classification. A change in ownership or membership may affect federal tax classification and whether the LLC must obtain a new EIN or file certain tax returns. Consult a tax professional and the IRS guidance.
- Records and minutes: Keep written evidence of the probate authority, any consents, membership admission documents, amendments to the operating agreement, and distributions made to the estate or heirs.
6. Typical timeline and who to involve
- Locate documents (1–2 weeks): will, operating agreement, articles, membership certificates.
- Open probate (several weeks to months): depends on whether there is a will, creditors, or disputes.
- Negotiate transfer or admission (days to months): follow buy-sell provisions or negotiate with the LLC/other members.
- Complete transfer and update records (days): document everything and notify third parties.
Helpful Hints
- Read the operating agreement first. It usually controls transfer rules and admission procedures.
- Obtain probate letters before transferring the interest. Banks and the LLC will often require them.
- Keep the transfer documented. An unrecorded transfer causes confusion and potential disputes.
- Talk to a South Carolina attorney experienced in probate and business law if the operating agreement is unclear, if there are restrictions, or if multiple heirs claim the interest.
- Consult a tax advisor before accepting or selling an inherited LLC interest. Tax consequences can be complex for LLCs and estates.
- Check for buy-sell provisions or third-party rights that can restrict or delay transfer; these often govern what actually happens to the interest.
- Update any contracts that name the decedent. Licenses, bank accounts, and contracts may need amendments or new signatories.
Statute references: South Carolina Uniform Limited Liability Company Act, Title 33, Chapter 44: https://www.scstatehouse.gov/code/t33c044.php. South Carolina Probate Code, Title 62: https://www.scstatehouse.gov/code/t62.php.
Disclaimer: This is general information and educational content only. It is not legal advice, does not create an attorney-client relationship, and may not reflect recent changes in the law. For advice specific to your situation, consult a licensed South Carolina attorney and a tax professional.