Estate planning is important for all businesses. It is particularly important for an owner of a single member LLC. Since there are no partners or co-owners to take over if the owner dies; business operations may slow down or come to a halt. An owner’s family and employees sources of income may come to a halt as well. Moreover, payments have to continue to the business’s creditors, wholesalers, and vendors.

Having a succession plan in place, gives family, employees and your community a clear plan to continue operating after your death. Below is a summary of options available to the sole owner of an LLC.

Colorado Default Transfer

If no estate planning is in place, when the owner dies, the assets of the business go to the estate. Also the LLC no longer has a member. Under Colorado law an LLC without any members is automatically dissolved. To avoid dissolution the estate must admit a new member within 90 days. C.R.S. 7-80-801(1)(c)(I) Under most circumstances the default option is not the preferred method. Sometimes, the person or persons who become the new owner(s) are not the best choice for the business.

Probate Transfers

An owner of a single member LLC may transfer ownership of the business by naming someone in their will. Similar to the default transfer above. A court appoints an executor who then admits the new member(s) named in will. And just like above; this process takes time. It is however, a valid and effective way to transfer ownership, albeit slower. If this is how you plan to transfer ownership be sure your operating agreement specifically states this type of transfer is allowed.

Non-Probate Transfers

These types of transfers fall outside of the probate process:
 a) transfer in operating agreement: Estate planning language is added to the operating agreement directly transferring ownership of the LLC to a new person or entity.
b) use a beneficiary designation: A separate document is used to transfer ownership of the LLC to a new person or entity. To be effective, the operating agreement should specifically refer to the existence of the separate document.
c) have a buy-sell agreement: A buy-sell agreement is a contact selling the business on the death of the owner. The purchaser is usually a family member or key employee. The agreement may be financed through insurance. 

Close the Single Member LLC

Have the operating agreement state the LLC will automatically dissolve on the death of the owner. If this is your choice, include a beneficiary to receive business assets. This is an easy solution for an individual who provides professional or unique services.

An estate planning reminder:

At some point, someone else is going to own all your stuff. This is true for your business. Make a plan to what you want to happen with it when you pass. Some things to keep in mind: a) the size of your business; and b) how many people depend on your business for income.  

Consult with an attorney to ensure your ownership transfer is legally enforceable and will meet your goals. Keep your plan up-to-date, as the value of your business and your circumstances may change over time.