By Timothy A. Hoy, Esq.
A: First, you should understand Pennsylvania law on the effect of your death on the limited liability company (LLC). Unless you have an operating agreement for the company which says something different, the law provides that the company will cease to exist within 180 days of your death. The law obligates the executor of your estate to wind up the affairs of the company, which generally means liquidating the assets of the company (e.g., selling equipment and collecting accounts receivable), paying the company’s creditors, and distributing any leftover funds to your estate. Do not assume that your executor or your heirs have the authority to continue the operations of the company, except as necessary to wind up the company.
Second, you should consider creating an operating agreement for your company. The rules summarized in the preceding paragraph can be changed in the operating agreement. Many single member limited liability companies view an operating agreement as unnecessary, but specifying what will happen to the company following your death is one good reason to have one. For example, you may want to specify in the operating agreement that your entire interest in the company, including the authority to govern the company, may be transferred via your will.
Finally, you should consult with an attorney to prepare the operating agreement and either an attorney or a financial advisor about succession planning for your business. This short summary of the law in Pennsylvania and the value of an operating agreement should be supplemented by comprehensive advice from your advisors.