How do I transfer an LLC membership interest in a North Carolina probate estate without losing liability protection?
1. Detailed Answer
When a member of a North Carolina limited liability company (LLC) dies, their membership interest becomes part of the decedent’s probate estate. Transferring that interest correctly ensures the new owner enjoys the same liability shield that the LLC structure provides. Below are the key steps grounded in North Carolina law:
a. Confirm the Personal Representative’s Authority
Under N.C. Gen. Stat. § 28A-11-2, the personal representative (PR) may collect and manage all estate property, including intangible assets like an LLC interest. Generally, no special court order is needed to transfer intangible personal property if the will or intestacy laws authorize the PR to distribute assets to beneficiaries.
b. Review the LLC Operating Agreement
Most operating agreements include restrictions on transfer. They may require other members’ consent, set valuation methods, or impose buy-sell provisions. The PR must follow these consent procedures and payment terms. If the agreement is silent on post-death transfers, N.C. Gen. Stat. § 59-10-70 treats a membership interest as personal property that the decedent’s estate may assign. However, the assignee only gains full membership rights after complying with LLC admission rules.
c. Prepare and Execute an Assignment of Membership Interest
The PR should draft an assignment document stating the decedent’s ownership percentage, identification of the LLC, and the transferee’s name. Have the PR sign as representative of the estate. Deliver the assignment to the LLC, accompanied by any required consent forms from existing members.
d. Update LLC Records and File Amendments
North Carolina law does not require filing member-level changes with the Secretary of State, but the LLC must amend its internal membership ledger to reflect the new owner. If the LLC operates under a formal filing or reports ownership changes to third parties, submit an amendment to the Articles of Organization or a statement of change as needed.
e. Preserve Liability Protection
To maintain limited liability:
- Ensure the assignment follows the operating agreement and statute.
- Require the transferee to sign any joinder agreements or indemnity clauses in the operating agreement.
- Confirm the transferee understands capital contribution obligations, if any.
- Keep clear records in the LLC’s official books.
2. Key Takeaways
- Authority of Personal Representative: Under N.C. Gen. Stat. § 28A-11-2, the PR manages and transfers intangible assets without special court orders.
- Operating Agreement Controls: Follow consent, valuation, and buy-sell procedures in the LLC’s governing document.
- Statutory Assignment: Use an assignment of membership interest per N.C. Gen. Stat. § 59-10-70.
- Recordkeeping: Update the LLC ledger and, if required, file amendments or statements with the Secretary of State.
- Maintain Liability Shield: Obtain consents, joinders, and indemnities to keep the new member protected.
Transferring an LLC membership interest as part of a probate estate requires careful attention to both the probate code and LLC law. Mistakes can expose beneficiaries to personal liability or disrupt LLC operations.
At Pierce Law Group, our attorneys guide personal representatives and beneficiaries through every step. Contact us today for clear, actionable advice. Email us at intake@piercelaw.com or call (919) 341-7055.
