A business doesn’t die when an owner dies. The company can survive in perpetuity. But only if it’s documented correctly.
Without proper documentation, your business cannot survive the three months it takes to get court authorization. No one can sign contracts. No one can pay bills. No one can act on the company’s behalf.
This guide covers the two major failure points in business succession: companies that aren’t set up correctly, and companies without succession plans. Both lead to the same result. The business that survived your death cannot survive probate.
The Two Ways Business Succession Plans Fail
Business succession failures fall into two categories.
First: the business wasn’t set up with proper documentation. No operating agreement. No clear ownership records. No documented authority for who can act on behalf of the company.
Second: even with proper setup, no succession plan exists. The business is documented, but nothing addresses what happens when an owner dies or becomes incapacitated.
If you don’t have the first, you almost certainly don’t have the second. Sole proprietors are especially vulnerable. You started an Etsy business, a carpet cleaning company, a tile and plumbing operation. It’s just you. Why would you need documents?
You need them because without them, no one can wind down the business, collect receivables, pay outstanding bills, or sell assets. The business freezes.
The Operating Agreement Gap
“It’s just me. Why do I need an operating agreement?”
This question comes up constantly. Operating agreements aren’t legally required. But they prove you’re running an actual business, not just operating as yourself under a different name.
Banks want to see operating agreements before opening business accounts. More importantly, operating agreements establish who has authority. Who manages the company? Who can sign contracts? Who can make binding decisions?
With multiple owners, the operating agreement becomes even more critical. It addresses questions that seem unnecessary until they become emergencies:
• Who votes on major decisions?
• What happens if we disagree?
• What if one owner wants to leave?
• What if we want to remove someone?
• What happens when one of us dies?
Without documented answers, you end up in court.
The 50/50 Partner Problem
“It’s me and my business partner, 50/50.”
This sounds great in theory. Equal partners. Equal investment. Equal say.
What happens when you disagree? Neither of you has the deciding vote. If your operating agreement doesn’t address tiebreakers, you’re stuck. The business cannot move forward on that decision.
The document needs to name a tiebreaking process, role, or person. A mediator. An arbitration clause. A specific third party who makes the call. Without that mechanism, every deadlock goes to court.
The same logic applies to any partnership structure. It’s much easier to agree on dispute resolution when you’re friendly than when you’re fighting.
The Handshake Deal Disaster
“We’ve been friends for 30 years. A handshake is good enough.”
Here’s the thing about written agreements: you only look at them when you disagree.
If both parties agree, you can do whatever you want regardless of what’s written. The document doesn’t matter if everyone’s on the same page. You can change it, ignore it, modify it by mutual consent.
The document exists for when you stop agreeing. That’s when you need a reference point. That’s when “I thought we agreed” becomes he-said-she-said.
Common triggers: one partner is working harder than the other. Money starts flowing and expectations change. The business loses money and someone wants out. One partner gets sick or distracted by family issues.
These situations happen to 30-year friendships. They happen to family members. The friendship doesn’t prevent the disagreement. It just makes the disagreement more painful.
Member-Managed vs. Manager-Managed: Why It Matters
When you file an LLC with the Secretary of State, you choose between member-managed and manager-managed. Most people pick without understanding the implications.
Member-managed means all members appear on the public record and all members have managerial authority. If someone invests 1% in your company, they have voting power and they’re publicly listed as an owner.
Manager-managed means only the manager’s name appears publicly. You can have silent investors whose ownership stays private. You can bring in partners with limited control.
Privacy matters for many business owners. With member-managed, anyone can look up who owns your company. With manager-managed, they only see the manager’s name.
Control matters too. In a member-managed LLC, giving someone even a small ownership percentage automatically gives them managerial authority. You can limit this in the operating agreement, but they’re still on the public record with a vote.
How LLC Liability Protection Actually Works
People form LLCs to protect personal assets from business liability. That’s the right idea. But the protection only works in one direction.
An LLC protects your personal assets from things that happen in the business. Tenant slips and falls at your rental property? The lawsuit is limited to the LLC’s assets, not your personal home and savings.
It does not work in reverse. If you personally get in a car accident and have a judgment against you, creditors can attach your interest in the LLC. They might not be able to take the property inside, but they can get a charging order that entitles them to your distributions.
This surprises people who assumed “it’s in an LLC” meant complete protection. The business is protected from you. You are not protected from the business.
Maintaining Separation to Keep Protection
LLC protection requires maintaining separation between you and the business.
Don’t pay personal bills from the company account. Don’t pay company bills from your personal account. If you need to pay a company bill personally, transfer money into the company account first, then pay the bill.
With multiple LLCs, document money transfers between them. If LLC 1 and LLC 2 have the same owners and money flows back and forth undocumented, a creditor can argue they’re not actually separate entities.
If your operating agreement requires annual meetings, hold them. Even if you’re the only member. Document the meeting. Take yourself to dinner, save the receipt, tell your CPA about it.
The whole point of an LLC is separation. If you blur that line, you’ve defeated the purpose.
The Licensed Professional Problem
This one catches contractors, plumbers, electricians, and anyone whose business depends on a professional license.
Your company has a contractor’s license. You’re the key employee who holds it. If you pass away, the business loses its ability to operate as a licensed contractor.
There’s usually a grace period, but that grace period runs out long before the court can appoint anyone to act on behalf of the business. You’re looking at three months minimum to get someone appointed. Most businesses cannot survive three months without an operating owner.
The same issue applies even without licensing. Your heirs might not have the knowledge to run the business. Putting someone with no farming experience into a farming operation doesn’t work. They don’t know what they’re doing, the existing partners don’t want them there, and the business suffers.
Succession planning means thinking through who can actually step in and keep operations running.
“I Don’t Want to Be in Business With Your Heirs”
Going into business with someone is a leap of faith. You chose this person. You trust their judgment, their work ethic, their vision.
That doesn’t mean you want to be in business with their spouse.
When a partner dies without succession planning, their interest passes to their heirs. That could be a spouse with no business experience stepping into partner meetings. It could be children who have different ideas about how to run the company.
The surviving partners might want to buy out the heirs. The heirs might refuse. Now you have people in your business who you didn’t choose and who may have interests that conflict with yours.
Buy-sell agreements address this. They establish mechanisms for buying out deceased partners’ interests. Keyman insurance policies fund those buyouts. Without these documents, you’re hoping everyone plays nice.
Why Business Owners Should Own LLC Interests Through a Trust
Some states let you put beneficiaries directly on LLC membership interests, similar to a bank account. Nevada doesn’t.
The best option in Nevada: own your LLC membership interest through a revocable trust.
When you pass, your successor trustee steps in immediately. No waiting for court appointment. No three-month gap where no one can act. The business continues operating while succession gets sorted out.
A common concern: “Doesn’t putting my LLC in a trust expose my trust assets?”
No. The trust owns the LLC. The LLC doesn’t own the trust. Liability protection flows upward. Something happens inside the rental property? Claimants can reach LLC assets. But they can’t pierce through to the trust.
If something happens to you personally and creditors get a charging order against your LLC interest, the same charging order would have been available if you owned the interest individually. You’re not giving up protection by using a trust. You’re gaining continuity.
Power of Attorney and Business Authority
“I’m the manager of the LLC. I gave someone my power of attorney. Can they act for the company?”
The answer depends on two documents: the power of attorney itself and the operating agreement.
The power of attorney must specify what the agent can and cannot do. A general power of attorney might not cover business decisions. A specific power of attorney can authorize someone to act on behalf of the company for particular transactions.
The operating agreement must allow it. If your operating agreement doesn’t address power of attorney authority, third parties may refuse to accept it. The documents need to be congruent.
You can create a limited power of attorney for specific situations. Going out of town and there’s a big sale closing? You can authorize someone to sign that one deal without giving them broad authority.
One critical limitation: power of attorney ends at death. If you pass away, the power of attorney is immediately void. Your agent cannot sign anything on your behalf after you’re gone. That’s why succession planning matters separately from powers of attorney.
Series LLCs: Nevada’s Unique Structure
Nevada allows series LLCs, which aren’t available in every state. The concept: one parent LLC with multiple “series” underneath, each functioning as its own protected entity.
Real estate investors use this frequently. You have six rental properties. Instead of six separate LLCs with six filing fees, you have one series LLC with six series. Each property sits in its own series with its own liability protection.
Only the administrative shell shows up on the Secretary of State website. Nobody knows how many series you have or what’s in them.
The requirement: maintain separate books and records for each series. If you commingle funds or fail to track which money belongs to which series, you lose the liability separation.
Some complications exist. National banks often refuse to work with series LLCs because they’re not federally recognized. You’ll likely need a Nevada-based bank or credit union. Properties in other states may not get series LLC protection because that state doesn’t recognize the structure.
There’s also limited case law. Attorneys don’t love recommending structures that haven’t been tested in court. The statute is thin. What counts as “separate books and records”? Does one bank account with detailed internal tracking work, or do you need separate accounts for each series? Nobody has litigated this definitively.
The Wyoming and Delaware LLC Myth
“I heard I should form my LLC in Wyoming. Lower fees, better protection.”
Delaware and Wyoming are business-friendly states with lots of case law. Companies know how courts there interpret LLC statutes. Filing fees are sometimes lower.
But if your property is in Nevada, a Wyoming LLC creates complications.
Lawsuits happen where the property is located. Your Nevada rental property with a Wyoming LLC means a Nevada lawsuit with questions about which state’s law applies. That complexity might help or hurt you, but it definitely increases legal costs.
Some people layer LLCs. Wyoming holding company owns Nevada operating LLCs. This can work when done correctly. But “correctly” means thinking through how an actual lawsuit would play out, not just minimizing filing fees.
Nevada is also business-friendly. If your property and your life are here, a Nevada LLC often makes the most sense. Don’t choose based on filing fees alone.
Frequently Asked Questions About Business Succession Planning
Do I need an operating agreement if I’m the only member of my LLC?
Yes. Operating agreements establish that you’re running an actual business with documented authority. Banks often require them to open business accounts. They also prove separation between you and the business, which maintains liability protection.
What happens to my business if I die without a succession plan?
No one can act on behalf of the company until a court appoints someone, which takes approximately three months minimum. Bills cannot be paid, contracts cannot be signed, and operations typically cannot continue. Most service-based businesses fail during this gap.
What’s the difference between member-managed and manager-managed LLCs?
Member-managed means all members appear on public records and have managerial authority. Manager-managed means only the manager’s name is public, providing privacy and allowing you to bring in investors without giving them automatic control.
Does an LLC protect my personal assets from business lawsuits?
Yes, but only in one direction. The LLC protects personal assets from business liability. It does not protect the business from your personal liability. Creditors from personal matters can get a charging order against your LLC interest.
How do I maintain LLC liability protection?
Keep business and personal finances completely separate. Don’t pay personal bills from business accounts or vice versa. Document money transfers between multiple LLCs. Hold required annual meetings and keep records. The goal is maintaining clear separation.
Should I put my LLC in a trust?
In Nevada, yes. The state doesn’t allow beneficiary designations on LLC interests, so owning through a trust avoids probate and allows your successor trustee to step in immediately. This doesn’t expose trust assets to business liability.
What is a series LLC and should I use one?
A series LLC allows multiple protected “series” under one parent LLC, common for multiple rental properties. Benefits include single filing fees and privacy. Drawbacks include limited case law, issues with national banks, and out-of-state recognition problems.
What is a buy-sell agreement?
A buy-sell agreement establishes mechanisms for buying out a partner’s interest when they die, become disabled, or want to leave. It prevents unwanted heirs from becoming partners and provides a predetermined valuation method.
Should I form my LLC in Wyoming or Delaware instead of Nevada?
If your property and operations are in Nevada, a Nevada LLC usually makes the most sense. Out-of-state LLCs create complications when lawsuits happen where the property is located. Nevada is also business-friendly with established case law.
Can someone with my power of attorney run my business?
Only if both the power of attorney and the operating agreement allow it. The documents must be congruent. Power of attorney ends immediately at death, so it’s not a substitute for succession planning.
Key Takeaways
• Every LLC needs an operating agreement, even single-member LLCs. Banks require them, and they establish authority and prove business separation.
• 50/50 partnerships need tiebreaker provisions. Without them, deadlocks go to court.
• Written agreements exist for disagreements. When everyone agrees, documents don’t matter. Document everything while relationships are good.
• LLC protection works in one direction only. It protects personal assets from business liability, not the reverse.
• Maintain separation or lose protection. Don’t mix personal and business funds. Hold annual meetings. Document transfers between entities.
• In Nevada, own LLC interests through a trust. It’s the only way to avoid probate and ensure immediate succession.
• Buy-sell agreements and keyman insurance prevent unwanted heirs from becoming business partners.
