Corporate Law Considerations in Estate Planning and Administration

March 15, 2021


This publication addresses the unintended consequences of attorneys and clients failing to consider the impact of transfers of ownership by PPP borrowers and last remaining member issues during the estate planning and administration process.

The first of such issues specifically relates to a Paycheck Protection Program (“PPP”) loan (“PPP Loan”) when considering obtaining the consent of a PPP lender (“Lender”) or the Small Business Administration (the “SBA”) for the transfer of twenty percent (20%) or more of the common stock or other ownership interest of a PPP borrower (“Borrower”) in accordance with SBA Procedural Notice, Control No. 5000-20057, effective October 2, 2020 (the “SBA Guidance”).[1]  The second involves dissolution of a NY LLC when the last surviving member’s representative does not elect to continue such company and admit a replacement member under Section 701(a)(4) of the Limited Liability Company Law of the State of New York (the “LLCL”).

Estate Planning – Unintentional PPP Borrower Change of Ownership

By way of background, in an effort to combat the adverse economic impact of the COVID-19 pandemic, Congress passed and President Trump signed into law the CARES Act on March 27, 2020, through which the SBA, with support from the Department of Treasury, implemented the PPP Program so that Lenders could loan money to small and medium size businesses to maintain their payroll, hire back employees who may have been laid off and cover applicable overhead.  The most attractive feature of a PPP Loan to PPP Borrowers is complete forgiveness of the PPP Loan so long as proceeds are used in accordance with applicable laws, PPP Loan documentation and guidance.[2]  One such important guidance is the SBA Guidance.

A potentially overlooked point of corporate legal practice in estate planning matters is whether there is a “change of ownership” for a PPP Borrower under the SBA Guidance, which, if not consented to by the Lender or SBA, as appropriate, could forego forgiveness of a PPP Loan.  The SBA Guidance defines change of ownership in relevant part[3] as when “at least 20 percent of the common stock or other ownership interest of a PPP Borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity.”  This definition notably encompasses gifts often made from parents to trusts for the benefit of those parents or those parents’ children.  This is a routine maneuver in estate planning that is often defined as a “permitted transfer” under an entity’s governing documents (e.g., a Shareholders Agreement or LLC Operating Agreement).   Even if such transfer is permitted under governing documents, it will likely not be permitted under the SBA Guidance if it involves the transfer of at least 20 percent interest of the PPP Borrower.  If such interest threshold is met or exceeded, and the PPP Loan has not been fully forgiven, best practice dictates that attorneys work closely with clients, PPP Lenders and the SBA, as appropriate, to ensure compliance with SBA Guidance for such transfer in addition to whatever restrictions on transfer reside in the governing documents and PPP Loan documentation.

Whenever a client intends to transfer a twenty percent or more interest in an entity, a prudent attorney should ask, “Did the entity take out a PPP Loan?”  If the answer is yes, then the next question should be “Where in the forgiveness process is your entity?”  If the PPP Borrower has not repaid the PPP Loan in full or completed the loan forgiveness process (including amounts owed under Lender’s note being fully satisfied by either the SBA or PPP Borrower), then the client should wait to transfer its equity interests until it can be sure that it is in compliance with applicable laws, PPP Loan documents and guidance.

Estate Administration –Unintended Dissolution Under NY LLCL 701(a)(4)

Whenever a client seeks legal assistance with the administration of an estate, it is crucial to ask “Did the decedent own any interests in any entities, and, if so, was the decedent the sole owner of such entity?” If the decedent was the sole owner of a NY LLC, then one must next review the operating agreement of the NY LLC, if any.  The reasoning behind this initial line of questioning is that, under Section 701(a)(4) of the LLCL, a New York limited liability company is dissolved and its affairs shall be wound up at any time there are no members unless the legal representative of the last remaining member agrees in writing to continue the NY LLC and to the admission of the legal representative of such member or its assignee to the NY LLC as a member within 180 days (or such other period of time as may be provided in the NY LLC’s operating agreement) after the occurrence of the event that terminated the continued membership of the last remaining member.  Importantly, NY LLCL 701(a)(4) permits the operating agreement of the NY LLC to provide a greater degree of flexibility than the statutory default by permitting the operating agreement both to modify the 180 days’ time period and to alter the statutory dissolution provision altogether.

The take-away here is that it is imperative to ask questions as to ownership and review the operating agreement as soon as possible to assess whether there is a time sensitive matter.  While the dissolution of an entity which is a sole member of a NY LLC would also trigger this provision, for many trusts and estates practice groups, the potential dissolution under NY LLCL 701(a)(4) occurs on the death of an individual who was the sole member of a NY LLC.  If one or more such single member NY LLCs are part of a client’s estate, then the operating agreements of such entities should be promptly reviewed to assess whether there has been any modification to the 180-day time period or any other default provision of NY LLCL 701(a)(4) so that an unintended automatic dissolution can be avoided.


If you have any questions regarding the subject matter of this publication – what to review before consummating a change in ownership in a PPP Borrower or including what to include in documentation to continue a NY LLC and admit a replacement member– my colleagues and I are happy to answer them and any other questions you may have. Of course, please feel free to contact me directly on LinkedIn.

[1] https://www.sba.gov/sites/default/files/2020-10/5000-20057-508.pdf

[2] Generally, see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/ppp-loan-forgiveness.

[3] The SBA Guidance also contemplates a change of ownership when assets are transferred as well as when the PPP Borrow merges with and into another entity.  Both changes of ownership are outside the scope of this publication given its focus on estate planning.

  • Related Practice Areas: Corporate, Trusts & Estates