If we formed your LLC its Operating Agreement may or may not contain a “springing member” provision. This article is only for people whose LLC Operating Agreement has a springing member provision. To see if your LLC’s Operating Agreement has this provision go to the last page or second to last page of the Operating Agreement and look for several lines of text that have springing member language. If your LLC does not have this language at the end then it does not contain a springing member clause and you can ignore this article.
What is a Springing Member? The following is our springing member language:
“Springing Member. If this limited liability company has only one member and that member is an individual who dies, the company will not dissolve on the death of the member if the deceased member signed an Operating Agreement that provides for a springing member, in which event the entire membership interest of the deceased member will be assigned automatically at the moment of the death of the deceased member to the springing member designated in the Operating Agreement.”
This provision is in your Articles of Organization to help avoid the potential termination of your LLC if it were ever to be owned solely by one person and that person were to die.
Arizona law provides that if there is only one member of an Arizona LLC and that member is a person who dies, the LLC automatically terminates, i.e., ceases to exist. The termination of an LLC could have adverse consequences to the LLC and the person or people who would inherit the interest of the last deceased member. For example, the termination of the LLC could cause the recognition of income and liability for income taxes if the deemed distribution of assets of the LLC on its termination is a taxable event.
The purpose of the Springing Member provision in the Articles of Organization and in the Operating Agreement is to give the initial member(s) the option to name a springing member who would become a temporary member on the death of the last member who is a person.
The Springing Member never have any interest in the profits, losses or capital of the Company and does not have the right to any distributions of Company assets. The Springing Member is not required to make any capital contributions to the Company. Nor may the Springing Member bind the Company on legal obligations. The Springing Member cannot vote on, approve or otherwise consent to any action by, or matter relating to, the Company. The Springing Member automatically ceases to be a member of the Company when the person who inherited the interest of the deceased member becomes a member. The members can replace or remove a Springing Member at any time without the consent of the Springing Member.
Your LLC does not have to name a Springing Member
The Springing Member is optional. If you do want to name a Springing Member, you must name a trusted person who is not a member of the LLC. To name a Springing Member, do the following:
1. Go to the Springing Member signature block at the end of the Operating Agreement just after the LLC’s signature block at the end all the signatures.
2. Print the name of the Springing Member above the text that says “Print Name of Springing Member.”
3. Print the Springing Member’s address to the right of the Springing Member’s signature line.
4. Have the Springing Member sign his or her name above the line that says “Signature of Springing Member.” The signature does not have to be witnessed or notarized.
5. Keep the fully signed Operating Agreement in a safe place and give a copy of the signed document to all the members.