The death of a partner in a limited liability company has numerous consequences. Not only in terms of ongoing operations but also in relationships among the remaining partners. The most important aspect to consider is what happens to the shares of the deceased partner. While law governs inheritance rules, each case can vary depending on the LLC’s agreement. How does the inheritance of shares in an LLC proceed? When is the acquisition of shares effective for the company? Can the inheritance of shares be limited or excluded? We provide answers to these questions below.
Table of Contents
- Death of a partner in a limited liability company – inheritance of shares
- Death of a partner in a limited liability company – effectiveness of share acquisition for the company
- Death of a partner in a limited liability company – exclusion or limitation of inheritance
- Death of a partner in a limited liability company – a will with a specific bequest
Death of a partner in a limited liability company – inheritance of shares
Shares in an LLC are subject to inheritance according to general rules specified in the Civil Code. Upon the death of a partner, the inheritance opens, and at that moment they are acquired by the heirs of the partner.
The right to inheritance may arise from:
- the Act, or
- the will
The transfer of shares in an LLC does not require the heir’s additional statement to join the company. It occurs by operation of law.
If multiple heirs inherit the shares, the rules of co-ownership in fractional parts apply to the inheritance estate. Specific provisions in the Commercial Companies Code regulate this principle. According to Article 184 § 1 of the CCC, co-owners of shares, including heirs, exercise their rights in the LLC through a common representative. Until a common representative is appointed, the company’s statements can be addressed individually to each co-owner.
Death of a partner in a limited liability company – effectiveness of share acquisition for the company
The transfer of shares is effective from the moment the company receives a relevant notification from the interested parties. It is valid only if accompanied by proof of transfer of the shares. Those interested in the notification will primarily be the successors of the inheritance.
The proof of transfer of a share through inheritance is represented by:
- a court’s decision on the acquisition of inheritance or
- a registered certificate of inheritance.
Thus, the presumed successor’s statement alone is insufficient. Even if it is supported by registry office records. Only authorities specified in the regulations can confirm the acquisition of inheritance. This means either a court or a notary public.
Death of a partner in a limited liability company – exclusion or limitation of inheritance
An LLC is a company that combines elements of both a purely capital company and a partnership. The possibility of exclusion or limitation of inheritance reflects its personal nature. If the LLC’s partners are concerned about who will enter the company after a deceased partner, they can exercise their rights under Article 183 of the Commercial Companies Code.
To exclude or limit the entry of an LLC partner’s heirs into the company, two conditions must be met:
- Such a regulation must arise from the company’s agreement.
- The company’s agreement must specify the terms of payment to heirs whose right to enter the company has been restricted or excluded. Alternatively, it must state clearly that no payment is due.
- they are bought back by the designated acquirer, or
- they are compulsorily redeemed.
The effectiveness of a contractual provision limiting or excluding the heirs of a partner in an LLC from joining the company depends on the conditions of their repayment specified in the articles of association.
Death of a partner in a limited liability company – a will with a specific bequest
Exclusion or limitation of inheritance in the company’s agreement is not the only way to shape the composition of shareholders after the death of an LLC’s partner.
Another way is for the partner to create a will with a specific bequest. This is a type of disposition that designates specific objects or rights to become the property of a particular person upon the opening of the inheritance.
The subject of such clause may include, among others, transferrable property rights, such as shares in an LLC. However, if the LLC agreement includes provisions about excluding or limiting the inheritance of shares, a vindicatory clause will be ineffective.
Upon the death of an LLC partner, his shares are inherited. This occurs based on the law or a previously drafted will. The transfer of shares in an LLC does not require the heir’s additional statement to join the company. It occurs by operation of law. To make the acquisition of shares effective, notification to the company and evidence of share transfer through inheritance are necessary. The LLC agreement can stipulate the limitation or exclusion of share inheritance. In the face of a partner’s death in an LLC, dealing with legal, organizational, and emotional challenges can be difficult. This is why it is important to prepare relevant provisions in the agreement and plan the company’s continuity in advance.
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