South Carolina: Wills vs. LLC Operating Agreements — Who Controls Transfer of Your Business Interest?

Detailed Answer

Short answer: In South Carolina, your will generally cannot override an LLC operating agreement. An operating agreement is a contract among members that governs ownership rights, transfers, and management. If the operating agreement limits or controls transfers of membership interests, those contract terms usually remain binding after a member’s death. The probate process can pass whatever property interest you actually own, but it cannot undo valid contractual restrictions your operating agreement imposes.

Why an operating agreement usually controls

Most LLC operating agreements are enforceable contracts under South Carolina law. The South Carolina Uniform Limited Liability Company Act (Title 33, Chapter 44) governs LLCs in the state and allows members to structure rights, transfer rules, buyout mechanisms, and voting or management rights by agreement. See the South Carolina Code, Title 33, Chapter 44: https://www.scstatehouse.gov/code/t33c044.php.

Key consequences:

• If the operating agreement prohibits transfers without consent, your will cannot force the LLC (or its members) to accept a new member after your death.
• If the agreement distinguishes between a transferable (economic) interest and full membership rights, your will may pass the economic value (right to receive distributions) but not the management or voting rights unless the LLC’s rules allow membership changes.
• Common contractual devices—rights of first refusal, buy-sell provisions, mandatory buyouts, valuation formulas—can require the LLC or remaining members to buy the interest instead of admitting your devisee as a member.

How probate interacts with LLC rules

Your will goes through probate and transfers whatever legal or beneficial property interest you owned at death. But if the operating agreement says a member’s interest is subject to restrictions, probate cannot override those valid contractual restrictions. In practice this means:

• Your will can name your son as the beneficiary of your membership interest, but the LLC may treat him only as an assignee of economic rights (receiving distributions) unless members consent to admit him as a member.
• If the operating agreement requires a buyout on death, the estate or heirs might receive cash rather than ongoing ownership.
• If the agreement requires consent to transfer, your son may need approval, or the interest may pass to someone else under the contract’s default sale/valuation process.

Common provisions that matter

• Transfer restrictions and consent requirements
• Definition of “membership interest” vs. “transferable interest”
• Right of first refusal and offering procedures
• Buy-sell triggers and valuation formulas on death or disability
• Admission rules for new members and voting thresholds

Practical example

Suppose your operating agreement requires unanimous member consent to admit a new member and contains a clause that on a member’s death the LLC must purchase the member’s interest at appraised fair market value. If your will leaves your interest to your son, the estate can pass the economic interest to him. But the LLC will likely enforce the buyout clause. If the remaining members do not consent to his admission, he would receive the buyout proceeds instead of management rights.

What you can do now

1. Read your operating agreement carefully. Identify transfer restrictions, buy-sell language, admission conditions, and valuation rules. If you can’t find it, ask the LLC or your attorney for a copy.
2. Confirm what type of interest you own (economic only vs. full membership) under the agreement’s definitions.
3. Consider lifetime planning options: assign or gift interests now (if permitted), negotiate amendment to the operating agreement, or enter a buy-sell agreement that names your chosen heir as an allowed transferee.
4. Coordinate estate documents with business documents. A will that conflicts with contractual rules may cause disputes and delay probate distributions.
5. When drafting or updating your will, include language that acknowledges any operating agreement restrictions and expresses intent consistent with the agreement, or makes backup plans (e.g., accept buyout proceeds) to reduce surprises.

Where South Carolina law generally stands

South Carolina recognizes the validity of LLC operating agreements and member contracts under the state’s LLC statutes. Because of that statutory framework, contract terms in an operating agreement normally control transfers and membership questions after a member’s death. You can review the South Carolina Uniform Limited Liability Company Act here: https://www.scstatehouse.gov/code/t33c044.php.

Bottom line: Your will can transfer whatever ownership interest you legally hold, but it generally cannot override a valid operating agreement that restricts transfers, sets buyout mechanisms, or controls admission of new members. To give your business interest to your son in the way you want, align your estate plan with the operating agreement and consider changing the operating agreement or making lifetime arrangements.

Helpful Hints

• Locate the operating agreement now. Don’t wait until after an emergency or death.
• Look for defined terms: “membership interest,” “transferable interest,” “permitted transferee,” and “death.” These definitions determine what passes under a will.
• Check for buy-sell valuation formulas and timing for payment—some require immediate payment; others allow installments.
• If you want your son to manage the company after your death, expressly provide for his admission in the operating agreement or secure written consent from other members now.
• Consider alternative tools: gifting membership interest during life, creating a trust that holds the interest, or negotiating a redemption agreement that benefits your heirs.
• Remember tax implications: transfers of LLC interests can have gift, estate, and income tax consequences. Talk with a tax advisor as well as a lawyer.
• Keep copies of all amendments, buy-sell agreements, and membership consents with your estate planning documents.
• If the operating agreement is silent or ambiguous, courts may look at statute and member conduct. That can create uncertainty—clarify terms now to avoid litigation later.

Next steps

For a tailored plan, review your operating agreement and will with an attorney who handles South Carolina LLC and estate matters. They can confirm how the agreement’s terms interact with your probate documents and help draft amendments or alternative arrangements to achieve your goals.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. It does not create an attorney-client relationship. For legal advice about your specific situation in South Carolina, consult a licensed attorney.