Houston Estate Planning and Elder Law Attorney Blog
Many Houston business owners hold a consulting practice, a rental property, or a small trade business in a one-member limited liability company formed online in an afternoon. Many of those formation documents say little or nothing about what happens when the one member dies. Texas fills the gap with default rules in the Business Organizations Code, and those rules separate the right to the company’s money from the right to run it.
When the sole member of a Texas LLC dies, the member’s heirs, devisees, surviving spouse, or personal representative become assignees of the membership interest, entitled to its distributions but not to manage the company. With no member left to admit them, the company must wind up unless, within one year, the member’s legal representative or successor agrees to continue the company and become a member or designate one. McCulloch & Miller, PLLC builds these successor provisions into plans for owners through its estate planning for business owners.
What an Heir Inherits From a Texas LLC
A membership interest in a Texas LLC is personal property, and the owner of the interest does not own any specific property of the company. The company owns the rental house or the equipment, and the member owns the interest in the company. Under Business Organizations Code § 101.1115(a)(2), on the death of a member, the member’s surviving spouse and any heir, devisee, personal representative, or other successor become assignees of the membership interest, to the extent of their respective shares.
An assignee in a Texas LLC is a person who holds the economic rights in a membership interest without being a member of the company. Under § 101.109(a), an assignee receives the allocations of income and loss and the distributions the member would have received, along with a limited right to examine records. Section 101.108(b) states that an assignee is not entitled to participate in management, to become a member, or to exercise a member’s rights.
The code also makes the interest itself potentially community property while providing that a member’s right to participate in management is not community property. For a married Houston owner, that means a surviving spouse may hold an economic share without any management right.
The One-Year Window to Keep the Company Going
An assignee normally becomes a member only with the approval of all the company’s members, and after a sole member’s death there is no one left to approve. Section 11.056 addresses that situation directly. The termination of the last remaining member’s membership is an event requiring the company to wind up unless, within one year or a period set by the company agreement, one of two things happens:
- the member’s legal representative or successor agrees to continue the company and to become a member, or to designate another person who agrees to become one, effective as of the termination; or
- a member is admitted under a company agreement provision written specifically for admitting a member after no member remains.
The code allows the company to have no members during that gap, and if no one continues it, the legal representative or successor carries out the winding up.
The window is long enough to act on, but only if the family knows it is running. McCulloch & Miller talks these questions through with families before any document is drafted. Call (713) 333-8900 to schedule a consultation.
What the Company Agreement Can Fix in Advance
Most of these rules are defaults. Under § 101.052, a company agreement may waive or modify the code’s provisions applicable to an LLC, with limited exceptions. Section 11.056(c) goes further for the death problem and lets the agreement obligate the member’s legal representative or successor to continue the company and to the admission of that representative, successor, or their designee as a member.
Ownership is the other half of the plan. A membership interest held in the owner’s own name passes through the owner’s estate. An interest the owner transferred to a funded revocable trust during life, with the trustee admitted as the member, is already held by the trust at death. It passes to a successor trustee under the trust’s terms rather than through probate.
Questions Business Owners Ask About a Single-Member LLC
Does a Texas LLC End Automatically When Its Only Member Dies?
Not immediately. The end of the last member’s membership is an event requiring winding up. The company can still continue if the member’s legal representative or successor acts within one year, or within the period the company agreement sets.
Can the Heir Run the Business Right Away?
Not as an assignee. An assignee receives distributions but has no right to participate in management until admitted as a member.
Can the Company Agreement Name a Successor Member?
Yes. Texas allows the company agreement to provide for admitting a member after no member remains, and to obligate the legal representative or successor to continue the company.
Reviewing an LLC Before It Becomes an Estate Problem
A two-page company agreement downloaded at formation can leave a family with an income stream and no one authorized to sign a lease or a check. McCulloch & Miller meets with business owners at its two Houston offices, downtown and, by appointment, in the Galleria area, and pairs the company documents with the owner’s trust planning. If you would like the firm to review your plan, call (713) 333-8900 or contact McCulloch & Miller to get started.