Limited Liability Company. Membership rights in a Limited Liability Company generally can be viewed as consisting of financial rights (referred to as the “transferable interest”) – the right to share in the profits, losses and distributions of the Limited Liability Company and other rights (rights to vote and to manage the business, information rights, etc.) Unless the operating agreement (or articles of organization) provides otherwise, a member may assign or transfer financial rights that comprise the transferable interest. Such a transfer gives the transferee all the rights to profits and distributions previously held by the transferor. Unless the operating agreement (or articles of organization) provides otherwise, a transfer does not create other membership rights in the transferee, nor can the transfer allow the transferee to directly or indirectly exercise governance rights, unless all other members give their consent. The operating agreement (or articles of organization) may provide for less-than unanimous consent. Continuity of the Business Following Withdrawal or Death of an Owner Sole Proprietorship. The business entity terminates at the death of the proprietor or if the proprietor becomes unable to manage it. Partnership. General partnerships and limited liability partnerships under the Revised Uniform Partnership Act (RUPA) do NOT automatically cease to exist when a partner dies or otherwise withdraws from a partnership. The partnership continues, unless certain other events occur. A limited partnership does not terminate when a limited partner dies or becomes disabled. The limited partner’s interest may be assigned, and if the limited partner dies, his or her legal representative may exercise all the partner’s rights for purposes of settling the estate. Corporation. A corporation is a separate legal entity, and therefore the death, disability or withdrawal of an owner has no legal effect on the business entity’s existence. As a practical matter, however, many small businesses depend heavily on the efforts of one or two individuals, and the death or disability of one of those key individuals can seriously impair the economic viability of the business. For this reason, a small business corporation, like a partnership, often will obtain life insurance on key shareholder-employees. The articles of incorporation or a buy-sell or shareholder agreement may restrict the transferability of stock in order to retain control of the firm by the remaining key individuals. Limited Liability Company. Limited Liability Companies governed by the new Minnesota Revised Uniform Limited Liability Company Act will not dissolve upon the termination of membership of a particular member unless specified in the operating agreement (or articles of organization) or, once a member has been admitted 90 consecutive days pass during which the Limited Liability Company has no members. Otherwise, the termination of a member’s interest does not affect the existence of the Limited Liability Company. Complexity and Expense of Terminating the Business Sole Proprietorship . There are no federal or state regulations governing termination of the sole proprietorship itself. The sole proprietor simply winds up the affairs of the business and discontinues operations. If the business had employees, the owner must notify federal and state taxing authorities that the proprietor is no longer operating the business and paying employees.
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