Disclaimer: This is general information, not legal advice. I am not a lawyer. For advice about your specific situation, consult a licensed Oregon attorney.
Detailed Answer
If an Oregon limited liability company’s operating agreement does not say what happens to a member’s ownership when that member dies, state default rules and basic estate principles fill the gap. Under Oregon law governing LLCs (ORS Chapter 63), the death of a member generally causes the member to be dissociated from the company. That dissociation affects management and governance rights, but it does not always end the deceased member’s economic interest.
Key points under Oregon law and common practice:
- Economic rights usually pass to the estate or heirs. The deceased member’s estate (or the person who inherits under a will or by intestacy) typically receives the right to the member’s share of distributions and any proceeds from a later sale of the interest. Those are “economic” rights (money and value).
- Governance rights typically end unless the transferee is admitted as a member. Most LLC statutes, including Oregon’s, treat a transfer of a membership interest differently from admission as a member. A purchaser or an heir who receives the economic interest is usually not automatically entitled to vote, manage, or exercise other governance rights unless the remaining members accept or admit that person as a new member.
- Default transfer and admission rules apply. When an operating agreement is silent, ORS Chapter 63 provides default rules about transfer, dissociation, and admission of transferees. Those defaults often permit the estate to collect distributions and be paid out on liquidation, but the estate usually cannot step in as an active member without consent. See Oregon Revised Statutes, Chapter 63: https://www.oregonlegislature.gov/bills_laws/ors/ors063.html
- Buyout or forced sale may follow company procedures. Many LLCs rely on buy-sell terms in the operating agreement (right of first refusal, company or member buyout, valuation methods). If there is no agreement, members may need to negotiate a buyout or seek court help if they cannot agree.
- Probate vs. nonprobate transfer. The economic interest will pass according to the deceased’s estate plan (will or intestacy) or by nonprobate device (trust, transfer-on-death assignment) if those documents exist and are recognized by the LLC. If the interest is part of probate, the personal representative may have authority to sell or transfer the economic interest subject to LLC rules.
- Dissolution risk is usually low but possible. In some small-member LLCs, the death of a key member can lead to stalemate. If members cannot agree on admission or buyout, that conflict can trigger remedies under ORS Chapter 63, including judicial dissolution in extreme cases.
Typical outcome in a simple hypothetical
Hypothetical: Member A dies leaving an estate that names a spouse as beneficiary. The operating agreement says nothing about death. Under Oregon default rules, the spouse (or estate) receives Member A’s economic interest (rights to distributions and share of sale proceeds). The spouse cannot vote or manage the LLC unless the other members agree to admit them. The LLC or the remaining members can negotiate a buyout of the spouse’s economic interest or admit the spouse as a member by unanimous or required-member vote per the LLC’s governing rules (if the articles or default law require consent).
What to do now — practical steps for members, estate representatives, and heirs
- Locate governing documents. Find the operating agreement, articles of organization, and any buy-sell or shareholder agreements. Even a short clause can control what happens.
- Check for nonprobate devices. Look for a trust, transfer-on-death designation, or assignment of economic rights that might move the interest outside probate.
- Notify the LLC in writing. The personal representative or heir should notify the company that a member died and provide required documentation (death certificate, letters testamentary) so distributions and tax reporting can proceed.
- Review ORS Chapter 63 provisions. The Oregon LLC default rules apply where the operating agreement is silent. See ORS Chapter 63: https://www.oregonlegislature.gov/bills_laws/ors/ors063.html
- Negotiate admission or buyout. If the estate wants active membership rights, request admission; be prepared that other members may require conditions or payment. Alternatively, negotiate a buyout using a fair valuation method (book value, appraisal, formula in agreement, or mutually agreed method).
- Use estate planning to avoid future uncertainty. Current members should update wills, trusts, and the operating agreement to state precisely what happens on death (e.g., right of first refusal, mandatory buyout formula, life insurance funded buyouts, admission rules).
- Get legal help. If members disagree or the estate cannot exercise its economic rights, consult an Oregon attorney experienced in LLC and probate matters.
Helpful Hints
- Don’t assume an heir automatically becomes a member—economic rights and governance rights are different.
- Consider a buy-sell funded by life insurance to provide liquidity and avoid forced sales.
- Put a clear membership transfer and valuation process in the operating agreement now rather than leaving it to default rules.
- Personal representatives should preserve company records and avoid unilateral actions that exceed their authority under state law and the operating agreement.
- If the LLC is manager-managed, identify whether managers have authority to admit new members or approve transfers.
- Keep good documentation of all communications and offers in any buyout or transfer negotiations.
If you want help understanding the operating agreement or the estate’s options under Oregon law, contact a licensed Oregon attorney who handles LLC and probate matters.