Earlier this year, Governor John Bel Edwards signed into law House Bill No. 515, amending La. R.S. 12:1333 and enacting the new La. R.S. 12:1333.1 of the Louisiana Limited Liability Company Law (the “LLC Law”), which became effective on August 1, 2022. This legislation represents meaningful changes to the nature of membership interests in Louisiana single-member limited liability companies and the rights related to those interests upon the death of a member.
Under Louisiana law, upon the death or declaration of incompetency of a member of a limited liability company, the deceased member’s membership interest in the company automatically terminates. Thereafter, the appropriate representative of the deceased or incompetent member is treated as an assignee of the member’s interest and is entitled only to receive distributions from the company, to share in profits and losses, and to receive allocations of the company’s items of income, gain loss, deductions and credit (“Financial Rights”). Unless and until an assignee is admitted as a member of the company, the assignee is not entitled to exercise any management rights or powers of a member, such as voting rights and inspection of company records (“Management Rights”).
The designation of a person who assumes the membership interests of a deceased or incompetent member as an assignee is particularly significant in the context of single-member limited liability companies. Prior to the enactment of Section 1333.1, upon the death or incompetence of the sole member, the company’s membership would be reduced to zero. Unlike a partnership entity, which automatically terminates upon the reduction of its membership to one person, the LLC Law is silent as to the effects of a limited liability company’s membership being reduced to zero. Thus, prior to the enactment of Section 1333.1, when the sole member in a single-member LLC died or was declared incompetent, and his or her membership interests transferred to the designated assignee, it was unclear who, if anybody, had the authority to manage the company, or even whether the existence of the company would continue.
The newly enacted Section 1333.1 offers some clarity on this issue by providing an exception to the general rule that the representative of a deceased single member is to be treated as an assignee:
- Notwithstanding any provision of law to the contrary, the death of the member of a single-member limited liability company shall not result in the termination of the interest of the deceased single member in that limited liability company or in the termination of that limited liability company, but instead the interest of the member in the single-member limited liability company shall be fully heritable.
Upon the death of the single member, the deceased member’s succession representative “may exercise all of the deceased member’s rights for the purpose of settling or administering the member’s estate, including all financial and management rights related to the single-member limited liability company held by the deceased member at the time of his death.” Once the membership interest is properly transferred, as part of the succession, “the heir or legatee shall have full rights of membership in the limited liability company, including all financial and management rights.”
These changes could result in significant consequences for single-member limited liability company owners that do not adequately plan for the transfer of membership interests upon their death. Unless otherwise provided in the company’s articles of organization or a written operating agreement, the membership interests of a deceased single member are fully heritable and would be transferred to the deceased member’s heirs and legatees, who would then enjoy full rights as a member or members of the company. Now, the owner of a successful single-member LLC will be able to leave his or her membership interest to their non-member children, who can carry on the business following his or her death. Alternatively, consider the sole member that dies intestate whose estranged son inherits full membership rights and is free to manage the company as he chooses. Business owners and practitioners should be cognizant of the effects of these changes and should prepare accordingly in drafting articles of organization and operating agreements of Louisiana single-member limited liability companies.
 LSA-R.S. 12:1333(A).
 LSA-R.S. 12:1330(A).
 LSA-C.C. Art. 2826.
 The LLC Law defines a “limited liability company” as “an unincorporated association having one or more members” (LSA-R.S. 12:1301(10) (emphasis added), there is no statute providing for express automatic termination of an LLC with no members.
 LSA-C.C. 12:1333.1(A).
 LSA-R.S. 12:1333.1(B).
 LSA-R.S. 12:1333.1(C).