Family businesses large and small, whether involving real estate or anything else, often use a limited liability company as the ownership vehicle for the business. The founder of the business will often maintain a controlling position in the LLC, while other family members receive only an “economic interest”—the right to receive money and enough information to file their taxes, but not much more.
When the founder dies and LLC interests go to the various family members, or if the founder gets divorced, it can become crucially important to define exactly who gets what types of rights in the LLC. If a surviving family member or spouse receives only an economic interest, then they cannot make decisions for the company or even know very much about what’s happening in the company. Most importantly, they cannot decide how much money the LLC should distribute to its members and when.
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