What happens to an LLC member’s share if the operating agreement is silent?

This FAQ explains what typically happens under North Dakota law when an LLC operating agreement does not address what occurs to a member’s LLC interest at death. It assumes no special facts and gives practical steps you can take. This is educational information only and not legal advice.

Detailed Answer — What North Dakota law usually provides

Under North Dakota’s limited liability company law, a member’s interest in an LLC is generally made up of two separate pieces:

• Economic rights (the right to share in distributions and receive the member’s share of value); and
• Management and voting rights (the right to participate in running the business, if the LLC is member-managed, or vote on certain matters).

If the operating agreement is silent about death, the usual default rules that apply in many states — and that North Dakota follows in substance — are:

1. Economic rights pass to the deceased member’s estate or heirs. The estate or transferee can typically collect distributions and the deceased member’s share of profits and losses. The estate therefore holds the financial value of the membership interest.
2. Management and membership rights generally do not automatically pass to the heirs. The estate or heir usually does not become a full member with voting or management authority unless the other members admit the transferee as a member under the LLC’s governing law or agreement. In practice, this means heirs often receive only the economic benefit until they are formally admitted.
3. Other members often have contractual or statutory rights that can affect transfer on death: rights of first refusal, buyout triggers, or mandatory purchases. If the operating agreement is silent, members may rely on statutory default rules and any valid transfer restrictions in the LLC’s formation documents.

North Dakota’s statutes that govern LLCs and the rights of members and transferees provide the legal framework for these outcomes. See North Dakota Century Code, Chapter 10-32.1 (Limited Liability Companies) for the governing rules and definitions: https://www.legis.nd.gov/cencode/t10c32-1

What that looks like in practice

Example A — One-member / family LLC: If a single-member North Dakota LLC’s owner dies and the operating agreement does not direct a transfer, the owner’s estate will hold the economic interest. The estate executor may be able to collect distributions and sell that interest, but the estate might not be able to control the company unless state law or any other members (if later admitted) approve.

Example B — Multi-member LLC: If a member of a multi-member LLC dies, the member’s heirs will generally receive the right to payments and the value of the share. The remaining members typically can require that the heirs sell the interest or they can buy it out, depending on the operating agreement or any agreed buy-sell arrangement. If there is no agreement, the estate may try to monetize the interest through negotiation or probate, but the other members may object to an heir exercising management rights.

Valuation and buyouts

If a buyout occurs (voluntarily or because other members force a sale), the LLC or remaining members and the decedent’s estate will need a valuation method. Common approaches are fair market value, book value, or another agreed method. If the operating agreement does not specify, the parties often negotiate or ask a neutral appraiser or a court to determine value.

Practical steps to take now

• Review the operating agreement carefully. Even if it doesn’t mention death explicitly, it may contain transfer restrictions or valuation formulas that control.
• Check the articles of organization and any buy-sell agreements or ancillary documents for transfer provisions tied to death.
• If you want a specific outcome (automatic transfer to heirs, mandatory buyout, cross-purchase by other members), amend the operating agreement to state that clearly.
• Consider life insurance on key members with proceeds earmarked for buyouts. This provides liquidity to buy out an estate without draining the business.
• Plan estate documents (will, trust) in coordination with the LLC structure to avoid unexpected ownership disputes. A trust holding the LLC interest may avoid probate and ease transfer.
• If a dispute arises after a member’s death, consult an attorney experienced in North Dakota LLC and probate law for guidance on negotiation, valuation, or litigation options.

Helpful Hints

• Don’t assume heirs automatically become managers. Expect them to receive economic rights but not management authority unless admitted.
• Add explicit death provisions to an operating agreement: buyout price method, payment terms, life insurance cross-purchase, and admission rules for transferees.
• Use a buy-sell agreement that sets price and terms before a death occurs to reduce conflict and uncertainty.
• Keep the LLC’s membership ledger and documentation current to make transfers smoother in probate or trust administration.
• Engage both an estate attorney and a business/LLC attorney when structuring transfers to align estate and business planning goals.
• If you are an heir, ask for copies of the LLC’s operating agreement, financial statements, and membership ledger early to evaluate your options.

Key statute reference: North Dakota Century Code, Limited Liability Companies (Chapter 10-32.1): https://www.legis.nd.gov/cencode/t10c32-1

Disclaimer: This article is educational only and does not constitute legal advice. Laws change and facts matter. Consult a licensed North Dakota attorney for advice about a specific situation.