What Happens to an LLC When the Owner Dies in Texas?

When the owner of a Texas LLC dies, the company does not automatically close. In most cases the business keeps running and the deceased owner’s membership interest becomes an asset of the estate, but what happens to an LLC when the owner dies in Texas depends on three things: what the operating agreement says, whether there are other members, and whether a surviving spouse already owns half the interest as community property. Without an operating agreement, Texas law gives heirs the right to collect money from the LLC but not the right to help run it.

The Operating Agreement Decides Almost Everything

The LLC’s operating agreement is the first document to find. Under Texas law, the company agreement governs the relationships among members, assignees, and the LLC itself, and it covers the company’s internal affairs.¹ Its terms override the default statutory rules on nearly every question that comes up after a death.

A well-drafted agreement usually covers three things. Who gets the deceased member’s interest. How that interest is valued. Whether the remaining owners or the LLC can buy it out.

The most common tool is a buy-sell provision. It gives the surviving members or the LLC itself the first opportunity to purchase the deceased member’s share, usually at a price fixed by a valuation formula the owners agreed on in advance. That keeps heirs from being forced into a business relationship they never chose, and keeps ownership with people who know the company. Some agreements name a specific successor who steps directly into the deceased owner’s role. Others require the LLC to carry life insurance on each member so the company has cash to fund the buyout without draining working capital.

If the operating agreement speaks to the situation, its terms control. The default rules below only matter when the agreement is silent or doesn’t exist.

Multi-Member LLCs Keep Running

When one owner of a multi-member LLC dies, the company itself is on stable ground. An assignment of a membership interest is explicitly not an event requiring the winding up of the LLC.² The surviving members retain full control, business operations continue, and the deceased member’s heir takes the financial interest.

If a buy-sell provision applies, the death typically triggers it. The surviving members or the LLC purchases the interest from the estate at the agreed price, the heir is paid, and the surviving members consolidate ownership. That is the cleanest outcome and the one most owners plan for.

Without a buy-sell provision, the surviving members choose between admitting the heir as a new member or leaving them as an assignee with money rights only. The deceased member’s membership itself terminates at death, but the economic interest passes on.³ That arrangement can last indefinitely, and it is where disputes tend to ignite.

Single-Member LLCs Face a One-Year Deadline

A single-member LLC is more urgent, because the company suddenly has no members at all. Losing the last remaining member is an event that triggers winding up of the company unless someone acts within a set period.⁴ The heir or the executor has up to one year from the date of death to agree to continue the LLC and either become a member or designate someone else as the new member. Miss that window and the LLC moves toward dissolution.

When the heir does step in within the year, they inherit the entire membership interest, with full management and financial authority. There is no unanimity requirement because there are no surviving members to vote. The heir can keep operating the business, sell it, or wind it down.

This one-year clock is the most time-sensitive deadline in the entire process. Everything else can be sorted out over months. Admitting the new member cannot wait.

What Heirs Actually Receive Without a Plan

When the LLC has no operating agreement, or the agreement doesn’t address death, the Business Organizations Code fills the gap. The deceased member’s ownership passes to heirs through probate if there is a will, or through Texas intestacy rules if there isn’t. But what they receive is sharply limited.

Assignee Status, Not Membership

Under the default rules, an heir who receives a membership interest becomes an assignee rather than a member. An assignment does not entitle the recipient to participate in management, become a member, or exercise any member rights.² What the assignee does get is the right to collect the deceased member’s share of income allocations and distributions.⁵ The heir gets the money. Not the power.

Unanimous Consent to Become a Member

For an assignee to gain full membership, with voting and management rights, every remaining member of the LLC must approve.⁵ That is unanimous, not a majority. Surviving members have no legal obligation to agree. If they refuse, the heir is stuck as a passive financial participant with no vote, limited access to information, and no ability to force the company to make distributions. The only real leverage left is a lawsuit to compel distributions if the surviving members are deliberately withholding them, or negotiation for a buyout.

Community Property and the Surviving Spouse

Texas is a community property state, and that matters for LLC ownership. A membership interest in an LLC is personal property that may be community property.⁶ If the deceased owner built or acquired the business during the marriage using community funds, the surviving spouse likely already owns half of that membership stake. That half never enters the estate because it was never the decedent’s alone to give.

Texas law also draws a sharp line. The economic value of the membership interest can be community property, but management rights are not.⁶ A surviving spouse who owns half the financial interest still cannot vote on company decisions or participate in management unless the other members admit them as a full member. The spouse has a right to distributions and a share of profits but no seat at the table. This catches many families off guard.

What the Executor Has to Do

The executor or personal representative of the deceased owner’s estate manages the membership interest during probate. Their job includes inventorying the LLC interest as an estate asset, obtaining a professional valuation, and making sure any distributions from the LLC flow into the estate.

A Texas probate court can authorize the executor to operate a business belonging to the estate if doing so serves the estate’s best interests and the will doesn’t direct otherwise.⁷ The court considers the condition of the business, whether it might need to be sold to pay debts, and whether continued operation helps or hinders settling the estate. This matters most for single-member LLCs where no one else is running things.

The executor also has to follow any transfer or buyout instructions in both the operating agreement and the will. If those documents conflict, sorting out priority often needs legal help. The overarching duty is to preserve the value of the interest until it is properly transferred or sold.

Business Debt and Personal Guarantees

An LLC’s liability shield generally keeps the deceased owner’s personal assets separate from the company’s business debts. The well-known exception is personal guarantees. If the owner personally guaranteed any of the LLC’s loans, leases, or credit lines, those guarantees survive death and become obligations of the estate. The lender can file a claim against the estate for the full guaranteed amount.

The executor should review every loan agreement and commercial lease the LLC holds to find any personal guarantees. Some commercial loan agreements also include clauses that accelerate the entire balance upon a member’s death. Catching these early gives the executor time to negotiate with creditors before claims against the estate pile up.

Tax Consequences for the Heir

Stepped-Up Basis

An heir who inherits a membership interest gets a valuable tax benefit: the interest’s tax basis resets to its fair market value on the date of the owner’s death.⁸ If the original owner invested $50,000 and the interest is worth $500,000 at death, the heir’s basis becomes $500,000. A later sale for $520,000 produces only $20,000 of taxable gain, not $470,000.

Federal Estate Tax

The value of the membership interest counts toward the deceased owner’s gross estate for federal estate tax. For 2026, the federal exemption is $15 million per person. Estates below that owe no federal estate tax. Texas has no separate state estate or inheritance tax, so most Texas LLC owners’ estates will pass free of estate-level taxation. Larger businesses should plan around the threshold well before it becomes relevant.

Federal Filings After the Death

Two federal administrative items are easy to miss during the chaos of settling an estate.

Every entity with an EIN must report a change in its responsible party to the IRS within 60 days, using Form 8822-B.⁹ When the deceased was the LLC’s responsible party, the executor or the new owner should file promptly. Keeping IRS records current prevents problems with future filings and bank access.

Whether the LLC needs a new EIN depends on how it was taxed. For a single-member LLC taxed as a sole proprietorship, the IRS treats the owner’s death as the end of that business arrangement, and anyone who takes over and continues the business needs a new EIN.¹⁰ Multi-member LLCs taxed as partnerships generally keep the same EIN after a member’s death because the entity itself continues to exist.

First Steps After an Owner’s Death

Find the operating agreement. Everything downstream turns on what it says, or doesn’t.
Determine community property status. If the owner was married, figure out whether the interest is community property, because the surviving spouse’s half never enters the estate.
Open probate. The executor needs authority from the probate court to manage and transfer the LLC interest.
If it’s a single-member LLC, act on the one-year deadline. Agree in writing to continue the LLC and admit a new member before the clock runs out.
Get a professional valuation of the membership interest for buy-sell payout, estate reporting, or distribution among heirs.
File Form 8822-B with the IRS within 60 days to update the responsible party.
Review every LLC loan and lease for personal guarantees signed by the deceased.
Notify the surviving members in a multi-member LLC so they can exercise buy-sell rights or decide whether to admit the heir.

1
State of Texas. Texas Business Organizations Code 101.052 – Company Agreement
2
State of Texas. Texas Business Organizations Code 101.108 – Assignment of Membership Interest
3
State of Texas. Texas Business Organizations Code 101.111 – Rights and Duties of Assignor of Membership Interest
4
State of Texas. Texas Business Organizations Code 11.056 – Supplemental Provisions for Limited Liability Company
5
State of Texas. Texas Business Organizations Code 101.109 – Rights and Duties of Assignee of Membership Interest Before Membership
6
State of Texas. Texas Business Organizations Code 101.106 – Nature of Membership Interest
7
State of Texas. Texas Estates Code 351.202 – Order Requiring Personal Representative to Operate Business
8
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
9
Internal Revenue Service. Form 8822-B – Change of Address or Responsible Party
10
Internal Revenue Service. When to Get a New EIN