An executor might assist LLC members through the business formation process, helping to complete and file the required paperwork with the Secretary of State office and other agencies. LLC members might also rely on the executor to prepare and file business compliance filings necessary to keep the LLC In good standing with the state. After a member dies or LLC members decide to close their company, an LLC executor might also help wind down the business’s affairs.
The term LLC executor has different meanings depending on who you ask. Some people use the term interchangeably with “LLC organizer,” but sometimes the scope of what an LLC executor does expands beyond handling a Limited Liability Company’s organizational paperwork.
Ultimately, an LLC executor helps alleviate some of LLC members’ administrative duties, allowing the members more time to concentrate on other aspects of their business.
While much of what an LLC executor has responsibility for has legal ramifications for the business and its owners, an LLC executor does not have to be an attorney. Unless the person appointed as the executor is a licensed attorney, I strongly recommend that entrepreneurs talk with a knowledgeable, licensed lawyer for guidance and insight when establishing a business entity.
Quick LLC Refresher
Before we dive into the details about LLC executors, I want to take a moment to revisit what an LLC is and why it’s a popular business entity choice for many business owners.
A Limited Liability Company is a separate legal entity that is independent of its owner(s). The primary advantage of forming an LLC is to protect a business owner’s personal assets from any legal issues or financial debts of the company.
Also, the LLC business structure provides tax flexibility. For tax purposes, an LLC is a pass-through entity, meaning its profits and losses pass through to its members’ personal income tax returns. Regardless of whether LLC members take out all of their profits as personal draws from the business or leave them in the business bank accounts, the business owners pay income tax and self-employment taxes (Social Security and Medicare taxes) on all of the LLC’s profits.
What’s especially attractive about the LLC entity type is that its formation and ongoing compliance formalities are relatively minimal compared to incorporating a business as a C Corporation. So, LLC members enjoy the personal liability protection and tax flexibility of a corporation without as many governance obligations.
Appointing an LLC Executor
Generally, there are no restrictions on who an LLC may appoint as its executor, but check with your state to see if they have any requirements. For example, in some states, an executor must be at least 18 years old and a resident of the LLC’s home state. It’s crucial that LLC members choose an executor who understands many of the intricacies of starting and running a business. And it’s critical that an LLC executor only performs the tasks they are legally authorized to provide. For example, an executor of an LLC may not lawfully provide legal advice to the LLC members if that individual is not a licensed attorney.
Examples of who might serve as a business executor:
- One of the LLC’s members
- A relative of an LLC member (e.g., spouse, sibling, child)
- An attorney
- An accountant
- An online business filing services company
There’s no specific paperwork required to assign an LLC executor. However, like all other entity governance procedures, the LLC operating agreement should document:
- Name and address of the individual or entity authorized as the executor
- The executor’s roles and responsibilities (and compensation if applicable)
Depending on the LLC’s needs and the executors’ qualifications or expertise, the executor of an LLC might handle several or all of the tasks that I’ve listed in the next three sections of this article.
Responsibilities of an LLC Executor
LLC members may use an executor to help them navigate the many filings involved in forming a Limited Liability Company:
- Preparing, signing, and filing LLC articles of organization with the state
- Designating (or serving as) the LLC’s registered agent
- Obtaining an EIN (federal tax ID number) for the LLC
- Applying for other tax identification numbers (such as sales tax and state and local payroll tax registration)
- Preparing and filing an initial report (if required by the state)
Another way an LLC executor might assist LLC members is by managing the various ongoing compliance tasks required to keep the entity in good legal standing with the Secretary of State and tax agencies:
- Preparing and filing an annual report (applicable in some states)
- Maintaining LLC entity records (e.g., articles of organization, LLC member certificates, LLC operating agreement, etc.)
- Filing articles of amendment in the event of major changes within the LLC
It’s advantageous for an LLC’s operating agreement to include specific instructions about what must happen to the LLC when its owner(s) die. For example, if owners want their interests in the LLC — and their authority to operate or manage the company — transferred to their heirs via their will, the LLC operating agreement should reflect that.
LLC members might select an LLC executor to oversee and help wind down the entity’s affairs if one or more LLC members pass away or become unable to manage the company:
- Filing articles of dissolution with the state
- Closing out tax accounts
- Settling the LLC’s outstanding debts
- Assisting with distributing assets to surviving members or deceased members’ heirs
In some states, responsibilities for winding down the affairs of a single-member LLC after the sole owner’s death fall by default to the executor of the LLC member’s estate.
How to Choose an Executor for Your LLC
I encourage you and your fellow LLC members to ask yourselves the following questions. Your responses will help guide you in selecting the right LLC executor for your needs.
- What expertise and experience do you and your fellow LLC members have, and what tasks do you feel comfortable handling on your own?
- How much time do you have to handle formation and compliance tasks?
- Do you want an LLC executor with extensive experience handling LLC formation and compliance filings?
- Do you want an LLC executor with sales tax and payroll tax registration experience?
- Do you want an LLC executor who can also serve as your company’s registered agent?
- Do you want an LLC executor with experience working with Limited Liability Companies in all 50 states?
The bottom line is the executor of an LLC has a lot of responsibility, so you want to feel unequivocally confident in their capabilities, reliability, and trustworthiness. Do your due diligence before selecting one for your company.
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