The inheritance of a share in a limited liability company (LLC) is a topic that raises a number of practical and legal issues. The situation in which a partner dies affects both: his heirs, the other partners and the company itself. The stability of the company, as well as the preservation of its economic and legal structure, depends on the correct interpretation and application of the norms of the Commercial Act (CA). Upon the death of a partner, questions arise such as: who can inherit, how is the transfer carried out, how is the share valued, what restrictions the partnership agreement may impose, and what rights for the heirs may be set out in the partnership agreement.
Legal Framework and Definitions
The main text governing inheritance is:
Art. 129. (1) A company share may be transferred and inherited.
This text confirms that a company share is not an “inalienable” asset — it may be inherited.
In addition, the Commercial Act contains provisions such as Art. 125, which govern the cases in which participation in a company is terminated, and what happens to the shares upon the death of a partner (e.g. Art. 125 para. 3).
In general, the legal logic is: membership is “personal” — the right to vote, participate in management and make decisions — it can be transferred to heirs only upon fulfillment of certain conditions and if the partnership agreement allows this. However, the property part of the company share (the value of the share) should pass to the heirs if the company or the agreement does not prevent this.
The partnership agreement (Articles of Association)
The partnership agreement is of utmost importance — it can:
- limit or regulate the right to inherit membership;
- provide conditions, deadlines, procedures for accepting successors as partners;
- include clauses for the assessment and payment of a share if the successor is not accepted or does not wish to join.
In the event of a conflict between a statutory provision and a contract in a partnership agreement, in many cases the courts will interpret a contract, but cannot change fundamental legal rights — for example, the right to property inheritance.
General rules for inheriting a company share
When and how is the inheritance right activated
- After the death of the partner, the heirs are the legal holders of the property part of the company share.
- However, their participation does not automatically mean entering into the capacity of partners (membership), unless the contract or the law provides otherwise.
- The heirs must make an application, notify the company, submit a certificate of heirs and request the implementation of their rights.
Two-way: membership and property part
- The property part of the share – the right to participate in profits, a share of the liquidation balance, the right to payment – can be inherited.
- Membership – the right to vote, to participate in decisions at a general meeting, etc. – is subject to specific rules and often depends on a decision of the general meeting.
If the heirs are not accepted as partners, they can only receive the monetary equivalent of the share.
General characteristics of the limited liability company
It has the characteristics of both a personal and a capital company
Its personal nature is revealed through:
- the provision of Art. 124 of the Commercial Act – each partner has the right, but also the obligation, to participate in the management of the company, to provide assistance in carrying out its activities;
- the provisions of Art. 119, para. 2 and Art. 115, item 3 of the Commercial Act – the partnership agreement contains the names/firms of the partners and these circumstances are subject to entry in the commercial register;
- the provisions of Art. 129, para. 1, sentence 2 and Art. 122 of the Commercial Act – the transfer of a company share from a partner to a third party is carried out in compliance with the requirements for accepting a new partner. With the death or termination of the legal entity, the partner’s membership relationship with the company is terminated.
The meaning of the cited norms is that the personality of each of the partners /whether a natural person or a legal entity/ is important for the conclusion of the partnership agreement, respectively for the existence of the company as a legal entity.
Content of the concept of a share
The share of the company is the participation of each partner in an LLC, expressed as a set of rights and obligations of a property nature, the amount of which is determined depending on the share of the respective partner in the capital, unless otherwise agreed – the provision of Art. 127 of the Commercial Code is dispositive.
The share capital is an immutable mathematical quantity, which always appears in the liabilities of the annual balance sheet and which serves as a digital guarantee for creditors. Only at the moment of formation of the company itself does the share capital coincide with the company’s assets. Capital is a relatively stable quantity, while assets are dynamic and change their type, content and size in the process of business activity.
The assets of an LLC include all monetarily assessed rights, obligations and relationships. The company is liable for its obligations with all its assets, and not only with its capital. The subject of a transfer transaction and inheritance is precisely this participation in the company, which has a property nature and is a function of the size of the share in the capital /its net value may be greater, equal or less than the share in the capital depending on the ratio between assets and liabilities and the principle that each partner is liable for the company’s obligations up to the amount of his share contribution/.
Summary
The principle is that upon the death of a partner, his participation in the LLC is terminated and the heirs do not automatically become partners in the company, even though they meet the legal conditions for acquiring membership. In the event that they accept the inheritance, a right to a monetary claim arises in their favor against the company under Art. 125, para. 3 of the Commercial Code for the equivalence of the property participation owned by their testator during their lifetime.
A consequence of the fact of the death of the testator is the possibility for his heirs to file a request for their admission as partners in the LLC under the procedure for admission of third parties. For this to happen, a decision of the general meeting is necessary. It is the legal fact from which a legal relationship arises on an original basis between the heir and the company.
“However, upon the death of a partner in a limited liability company and the presence of a clause in the partnership agreement that his heirs acquire the status of partners, do the latter receive the full range of rights – property and non-property – upon the fact of accepting the inheritance, even if they are third parties to the company?”
The short answer is YES and in its latest decision on this issue the Supreme Court of Cassation (SCC) provided more clarity. It is explicitly stated that the decision of the general meeting to accept the heir as a partner can also be taken in advance and be made dependent on a positive condition – the fact of inheritance. There is no obstacle to the decision being incorporated into the partnership agreement, as long as such a legal possibility is not excluded by law and is in accordance with the rule that the personnel composition of the LLC is of importance for its establishment and existence, respectively as a result it preserves the testator’s possessions within the circle of his heirs – Art. 129, para. 1 of the Civil Code. In this case, the personality of the new partner is individualized not by his names, but by the inheritance legal relationship into which he enters /e.g. all legal heirs of the testator, the first-born descendant heir, the only surviving spouse, etc./.
Therefore, with the submission of the request for participation in the company by the successor previously individualized in the clause of the partnership agreement, his rights as a partner in the OOD are consolidated. They should be considered enforceable against third parties in good faith from the day of the entry of the successor as a partner in the Commercial Register and the Register of Non-Profit Legal Entities, and with respect to the other partners, the decision to accept is effective as of the voting on the partnership agreement and its announcement in the TR, with the consequences of this decision occurring with the realization of the positive condition /implementation of hereditary succession/.
Conclusion
The Supreme Court of Cassation’s decision highlights the key role of the partnership agreement as a tool for preventing disputes in the inheritance of company shares. A well-drafted agreement can provide for a clear mechanism for accepting successors, including through conditional preliminary decision clauses.
For this reason, it is extremely important that the partnership agreement is drafted or updated with the help of a lawyer specializing in commercial law. Only in this way can both the interests of the partners and the inheritance rights of their successors be effectively protected, ensuring stability and predictability in the management of the company.