How do I protect my entity in the case of a shareholder passing away?
Especially if it's the CEO or single shareholder?
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Listen to the audio
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In this audio snippet, you'll hear about:
- Under traditional partnership law, the minute a partner passed away the entire partnership is dissolved
- With corporation, when something happens to an owner it does not affect the corporation
- Whoever inherits the shareholders estate gets control of their shares
- Should single member of LLC pass away, it depends on the management agreement structure
Audio Transcript
Travis:
How do I protect my entity in the case of a
shareholder passing away especially if it's the CEO or single member?
Yosef:
Oh, that's another great question. One of the core, if not key, if not
original, distinction between a corporation and any partnership was the
fact that corporation had the quality of, or the qualification of,
having continuity of interest, which meant that under traditional
partnership law where under traditional partnership convention shall we
say. The minute that a partner passed away, the entire partnership
dissolved. And a corporation, on the other hand, the ownership and the
administration which the corporation worked were distinct. Such that if
anything would happen to one of the owners, it would not effect the
operation, administration of the corporation's business dealings.
Travis:
OK.
Yosef:
Pretty much, whoever inherited the existing owner's estate would probably get shares of that new corporation.
Travis:
So, that is even true in the case of a single member –– whoever
controls the previous owner estate is probably going to be in control
of the entity thereon?
Yosef:
That's a really great question and the reason because when we talk
about a single member LLCs, what I am presuming you are referring to.
Travis:
Yes, sir.
Yosef:
LLCs are generally, limited liabilities, are very flexible entity and
due to the issues of management and control. Should a single member
actually pass away, it would actually depend on how the management
agreement before the LLC was constructed.
Travis:
Oh, really?
Yosef:
Yes, in fact depending on how that management operation was actually
constructed, you can decide whatever you want, decide how the
corporation would continue upon passing of a single member or key
executive.
Travis:
So, it sounds like something that you should address upon information then.
Yosef:
Generally, yes.
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