A problem that occurs not too infrequently in the realm of businesses owned by individuals organized as limited liability companies (LLCs) is how to deal with the death or incompetency of the last remaining member. This is particularly true in the case of single-member LLCs.
Under the Maryland LLC Act, Section 4A-902(a)(4) and (b), an LLC which does not have any members for a period of 90 days will automatically dissolve unless (i) the operating agreement provides for the admission of a successor member, or (ii) the successor to the last member affirmatively agrees to continue the LLC and to be admitted as a member, or appoint a designee to be a member, within the 90 day period following the withdrawal of the last member. Oftentimes, the personal representative, guardian, or other successor to the last member has no knowledge of the terms of the operating agreement, if one exists, or the need to affirmatively act within this time period. The resulting dissolution of the LLC can cause unintended consequences for the business and to any of its employees, creditors, or other interested parties.
In order to address this problem the Maryland LLC Act was amended in the last General Assembly to in effect flip the presumption, by making the continuation of the LLC automatic by admitting the successor to the deceased or incompetent member as a member of the LLC unless that successor affirmatively elects either to renounce the membership interest or to designate another person to become a member. The time period for the successor to make this election is extended to the date which is 90 days after the date when the successor first becomes aware of the event of the last remaining member’s death or incompetence. Thus, when the will of a deceased member is admitted to probate and a personal representative is appointed, that individual would become the successor member or would have 90 days after appointment to renounce the membership or appoint some other person to be the member.
Another change to the Maryland LLC Act enacted by the General Assembly adds the requirement to the qualification of foreign LLCs in Maryland that a statement must be made on the application for registration with SDAT if the entity is a series LLC organized as such under the laws of the foreign jurisdiction. This change is intended to clarify that in Maryland a series LLC will be permitted to do business in the state even though Maryland, unlike its neighboring jurisdictions Delaware, Virginia, and the District of Columbia, does not itself authorize the formation of series LLCs.
Both changes take effect as of October 1, 2020.
ABOUT JOHN ORRICK
John ‘Jack’ Orrick practices in Business Transactions focuses on general corporate matters, joint venture formations, and business and tax planning, as well as representing clients in securitized equity and debt financings.
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