Operating agreement
The document setting out how a limited liability company is run — including what happens to a member's interest when they die.
What it means
An operating agreement usually says whether an interest passes to the heirs, whether the remaining members can buy it out, and whether the heirs get any say in the business.
Where it says nothing, state default rules apply, and those commonly give the heirs the economic value without the right to participate in management.
A partnership agreement and a corporation's shareholder agreement do the same job for those structures.
Why it matters
It is the first document to find when a business interest is in an estate, and it frequently overrides what the will says.
It is also where a buy-out obligation lives, which can be the estate's largest single asset or its largest single problem.
When you are likely to meet it
- When the person who died held an interest in a business.
- When surviving partners assert a right to buy the interest.
- When a will leaves a business to somebody the agreement does not allow.
How this varies by state
What a state's default rules provide when an agreement is silent is set by state law.