Buying Out a Deceased Partner's Share in Minnesota

What happens to a co-owner’s share when a Minnesota business owner dies?

Unless the share passed outside administration, such as shares registered in beneficiary form or collected by small-estate affidavit, the estate’s personal representative, not the heirs, controls the deceased owner’s share during administration and is the person a surviving owner should negotiate with and buy from.

Under Minn. Stat. § 524.3-101, “Upon death, a person’s real and personal property devolves to the persons to whom it is devised by last will,” or to the heirs when there is no will, subject among other things “to the rights of creditors, elective share of the surviving spouse, and to administration.” The administration piece is what matters to you. Under Minn. Stat. § 524.3-709, “Except as otherwise provided by a decedent’s will, every personal representative has a right to, and shall take possession or control of, the decedent’s property.” Two transfers work differently: under Minn. Stat. § 524.6-307, subd. 1, “ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners,” and under Minn. Stat. § 524.3-1201, a transfer agent “shall change the registered ownership on the books of a corporation from the decedent to the successor or successors upon the presentation of an affidavit” stating, among other things, that the probate estate “does not exceed $75,000” and that “no application or petition for the appointment of a personal representative is pending or has been granted in any jurisdiction.”

Under Minn. Stat. § 524.3-711, “Until termination of the appointment a personal representative has the same power over the title to property of the estate that an absolute owner would have, in trust however, for the benefit of the creditors and others interested in the estate.” Under Minn. Stat. § 524.3-103, “to acquire the powers and undertake the duties and liabilities of a personal representative of a decedent, a person must be appointed by order of the court or registrar, qualify and be issued letters.” A spouse or adult child of the deceased owner who has not been appointed does not hold those powers. I suggest asking for a copy of the letters before you sign anything, because they show who has authority to sell and whether any restrictions are endorsed on them.

How does a buy-sell agreement control the buyout?

A signed buy-sell agreement, operating agreement, or partnership agreement controls the buyout on the points it covers, except for statutory terms an agreement cannot vary, and Minnesota’s entity statutes fill the gaps. For a corporation, § 302A.429 sets the conditions for enforcing a transfer restriction against the estate.

Each entity statute puts the owners’ agreement first:

• LLCs. Under Minn. Stat. § 322C.0110, subd. 1, “Except as otherwise provided in subdivisions 2 and 3, the operating agreement governs,” among other matters, “(1) relations among the members as members and between the members and the limited liability company.” Subdivision 3 lists terms an operating agreement may not change, including the power of a court “to decree dissolution in the circumstances specified in section 322C.0701, subdivision 1, clauses (4) and (5).” Under subdivision 2, “To the extent the operating agreement does not otherwise provide for a matter described in subdivision 1, this chapter governs the matter.” Under Minn. Stat. § 322C.0502, subd. 6, “A transfer of a transferable interest in violation of a restriction on transfer contained in the operating agreement is ineffective as to a person having notice of the restriction at the time of transfer.”
• General partnerships. Under Minn. Stat. § 323A.0103, “Except as otherwise provided in subsection (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.”
• Corporations. Under Minn. Stat. § 302A.429, subd. 1, a transfer restriction may be imposed in the articles, the bylaws, a shareholder resolution, or “an agreement among or other written action by a number of shareholders.” The same subdivision provides, “A restriction is not binding with respect to securities issued prior to the adoption of the restriction, unless the holders of those securities are parties to the agreement or voted in favor of the restriction.” Subdivision 2 makes a qualifying restriction enforceable against an estate. The restriction must be written, “not manifestly unreasonable under the circumstances,” and “either: (1) noted conspicuously on the face or back of the certificate; or (2) included in information sent to the holders of uncertificated shares in accordance with section 302A.417, subdivision 7.” Such a restriction “is valid and specifically enforceable against the holder of the restricted securities or a successor or transferee of the holder, including a pledgee or a legal representative.” Without that notation, or the equivalent notice for uncertificated shares, a restriction “is ineffective against a person without knowledge of the restriction.” A shareholder control agreement under Minn. Stat. § 302A.457, subd. 2 “is binding upon and enforceable against only those persons and other persons having knowledge of the existence of the agreement.”

When you pull the agreement, read it for six things: the event that triggers the buyout, whether you hold an option or an obligation, who buys (the company or the remaining owners), the price formula, the payment terms, and any notice period that starts at death. A notice period in a buy-sell agreement can forfeit the right if missed, so I suggest calendaring it the day you find it. A right of first refusal against heirs works differently from a mandatory purchase and is worth reading separately if that is what your agreement contains.

How do you buy the interest from the personal representative?

You buy from the personal representative, who has statutory authority to perform the deceased owner’s contracts and to sell estate property without heirs’ consent unless the will specifically devises the interest, and a buyer who deals in good faith and for value is protected. The steps are to confirm the appointment, deliver the agreement and price, and close.

Under Minn. Stat. § 524.3-715, “Except as restricted or otherwise provided by the will or by an order in a formal proceeding and subject to the priorities stated in section 524.3-902, a personal representative, acting reasonably for the benefit of the interested persons, may properly” take a list of actions. They include “(3) perform, compromise or refuse performance of the decedent’s contracts that continue as obligations of the estate, as the personal representative may determine under the circumstances” and “(23) sell, mortgage, or lease any real or personal property of the estate or any interest therein.” Clause (23) lets the personal representative sell “without the consent of any devisee or heir unless the property has been specifically devised to a devisee or heir by decedent’s will.” A buy-sell agreement the deceased owner signed is one of the decedent’s contracts under clause (3).

Under Minn. Stat. § 524.3-714, “A person who in good faith either assists a personal representative or deals with the personal representative for value is protected as if the personal representative properly exercised power.” The same paragraph limits that protection: “Except for restrictions on powers of supervised personal representatives which are endorsed on letters as provided in section 524.3-504, no provision in any will or order of court purporting to limit the power of a personal representative is effective except as to persons with actual knowledge thereof.”

The personal representative also owes duties to the heirs: under Minn. Stat. § 524.3-703, “A personal representative is a fiduciary who shall observe the standards of care in dealing with the estate assets that would be observed by a prudent person dealing with the property of another.” I suggest giving the personal representative the company’s financial statements and your price calculation with your offer; in my view, those records help a personal representative held to that standard decide whether to accept.

In an LLC, the personal representative also has a statutory right to company information. Under Minn. Stat. § 322C.0504, “If a member dies, the deceased member’s personal representative or other legal representative may exercise the rights of a transferee provided in section 322C.0502, subdivision 3, and, for the purposes of settling the estate, the rights of a current member under section 322C.0410.” Because the personal representative can use those information rights to settle the estate, sending the records with your offer saves a step.

What changes when the surviving owner is also the personal representative?

When the surviving owner is also the personal representative, Minnesota makes the purchase voidable by any person interested in the estate except one who consented after fair disclosure, unless the will or the deceased owner’s contract expressly authorized it or the court approved it after notice to interested persons.

Under Minn. Stat. § 524.3-713, “Any sale or encumbrance to the personal representative, the personal representative’s spouse, agent or attorney, or any corporation or trust in which the personal representative has a substantial beneficial interest, or any transaction which is affected by a substantial conflict of interest on the part of the personal representative, is voidable by any person interested in the estate except one who has consented after fair disclosure, unless” an exception applies. The exceptions are:

• Consent. An interested person who consented after fair disclosure cannot void the sale.
• The will or the deceased owner’s contract. The sale stands if “(1) the will or a contract entered into by the decedent expressly authorized the transaction.” A buy-sell agreement qualifies only if it expressly authorizes the purchase, so read its words before relying on it.
• Court approval. The sale stands if “(2) the transaction is approved by the court after notice to interested persons.”

Because the rule also reaches a sale to a corporation in which the personal representative has a substantial beneficial interest, and any transaction affected by a substantial conflict of interest, a redemption by the company you co-own can fall within it. A personal representative who misuses the role has personal exposure. Under Minn. Stat. § 524.3-712, “If the exercise of power concerning the estate is improper, the personal representative is liable to interested persons for damage or loss resulting from breach of fiduciary duty to the same extent as a trustee of an express trust.” Heirs can pursue a personal representative who misuses estate property. For that reason, I suggest getting consent after fair disclosure from every person interested in the estate, or court approval, even when the buy-sell agreement looks clear.

What happens in a Minnesota LLC when there is no buyout clause?

In a Minnesota LLC with no buyout clause, nobody is required to buy. The death of a member who is an individual ends the member’s management rights, and the estate keeps only the right to the distributions the member would have received.

The chain of statutes works this way:

• Death dissociates an individual member. Under Minn. Stat. § 322C.0602, “A person is dissociated as a member from a limited liability company when,” among other events, “(i) the person dies,” a clause that applies “(6) in the case of a person who is an individual,” or when “(2) an event stated in the operating agreement as causing the person’s dissociation occurs.” For a member that is a trust, or a trustee acting as a member, clause (8) instead dissociates the member when “the trust’s entire transferable interest in the company is distributed.”
• The estate holds an economic interest. Under Minn. Stat. § 322C.0603, subd. 1, “(1) the person’s right to participate as a member in the management and conduct of the company’s activities terminates,” and “(3) subject to sections 322C.0504 and 322C.1001 to 322C.1015, any transferable interest owned by the person immediately before dissociation in the person’s capacity as a member is owned by the person solely as a transferee.” A transferable interest is defined in Minn. Stat. § 322C.0102, subd. 28 as “the right, as originally associated with a person’s capacity as a member, to receive distributions from a limited liability company in accordance with the operating agreement.”
• A transferee receives distributions, not a vote. Under § 322C.0502, subdivision 1, a transfer does not entitle the transferee to “participate in the management or conduct of the company’s activities,” and under subdivision 2, “A transferee has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.”
• An heir can join by agreement, consent, or another listed route. Under Minn. Stat. § 322C.0401, subd. 4, a person becomes a later member “(1) as provided in the operating agreement” or “(3) with the consent of all the members,” among other routes.

Chapter 322C does provide a court-ordered sale, as an alternative remedy in a court dissolution case. Under Minn. Stat. § 322C.0701, subd. 2, the court in a clause (5) dissolution case may order another remedy, and “A remedy other than dissolution may be ordered in any case where that remedy would be appropriate under all the facts and circumstances of the case.” That remedy “may include the sale for fair value of all membership interests a member owns” to the company or to other members. A clause (5) case is brought “on application by a member,” and the estate holds its interest “solely as a transferee.” The member’s own debts to the company survive: under § 322C.0603, subdivision 2, dissociation “does not of itself discharge the person from any debt, obligation, or other liability to the company or the other members that the person incurred while a member.” More on what happens to an LLC interest at death and on drafting a mandatory redemption clause.

How does the statutory buyout work in a Minnesota general partnership?

When a partner who is an individual dies, a Minnesota general partnership must buy out the partner’s interest unless the partnership dissolves or the partnership agreement provides otherwise. The statute sets the price formula, interest, offsets, and the payment steps.

A partner’s death is a dissociation event under Minn. Stat. § 323A.0601, clause (7), which applies “in the case of a partner who is an individual.” Clause (8) applies instead “in the case of a partner that is a trust or is acting as a partner by virtue of being a trustee of a trust,” and dissociation then occurs on “distribution of the trust’s entire transferable interest in the partnership, but not merely by reason of the substitution of a successor trustee.” What follows depends on whether the partnership dissolves. Under Minn. Stat. § 323A.0603, the winding-up sections apply if the dissociation “results in a dissolution and winding up of the partnership business,” and “otherwise, sections 323A.0701 to 323A.0705 apply.” A partnership for a definite term or particular undertaking can dissolve after a death. Under Minn. Stat. § 323A.0801, that takes “the express will of at least half of the remaining partners,” expressed “within 90 days after a partner’s dissociation by death or otherwise under section 323A.0601(6) to (10).” I suggest checking the current text of § 323A.0801 for that period before relying on it.

When the partnership continues, Minn. Stat. § 323A.0701 applies:

• The duty to buy. “(a) If a partner is dissociated from a partnership without resulting in a dissolution and winding up of the partnership business under section 323A.0801, the partnership shall cause the dissociated partner’s interest in the partnership to be purchased for a buyout price determined pursuant to subsection (b).”
• The price. The buyout price is what the partner would have received “if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date. Interest must be paid from the date of dissociation to the date of payment.”
• Offsets. Under paragraph (c), “all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, must be offset against the buyout price.”
• Indemnity. Under paragraph (d), “A partnership shall indemnify a dissociated partner whose interest is being purchased against all partnership liabilities, whether incurred before or after the dissociation, except liabilities incurred by an act of the dissociated partner under section 323A.0702.”
• Payment if no deal is reached. Under paragraph (e), “If no agreement for the purchase of a dissociated partner’s interest is reached within 120 days after a written demand for payment, the partnership shall pay, or cause to be paid, in cash to the dissociated partner the amount the partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under subsection (c).”

Under paragraph (g), the payment must come with a package that includes these items:

• “(1) a statement of partnership assets and liabilities as of the date of dissociation”
• the latest available balance sheet and income statement, if any
• “(3) an explanation of how the estimated amount of the payment was calculated”
• “written notice that the payment is in full satisfaction of the obligation to purchase unless, within 120 days after the written notice, the dissociated partner commences an action to determine the buyout price, any offsets under subsection (c), or other terms of the obligation to purchase”

I suggest checking the current text of § 323A.0701 for each period before acting on it, because a missed period can end the right to contest the price.

What are the rules for a Minnesota corporation without a buy-sell agreement?

Chapter 302A does not require anyone to buy a deceased shareholder’s shares. Unless the shares passed outside administration, the estate holds them, the personal representative votes them, and a court-ordered buyout is available only in a shareholder lawsuit under § 302A.751.

Until the shares are sold or distributed, the personal representative may “(12) vote stocks or other securities in person or by general or limited proxy” under § 524.3-715. In a two-owner company, that can leave the surviving owner sharing control with someone who never worked in the business.

A court-ordered buyout under Minn. Stat. § 302A.751, subd. 2 arises “In an action under subdivision 1, clause (b), involving a corporation that is not a publicly held corporation.” That means a shareholder must sue and establish a ground listed in subdivision 1, clause (b). The grounds include that “(1) the directors or the persons having the authority otherwise vested in the board are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock” and that “(3) the directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as shareholders or directors of a corporation that is not a publicly held corporation, or as officers or employees of a closely held corporation.”

Once a ground is established, under subdivision 2 “the court may, upon motion of a corporation or a shareholder or beneficial owner of shares of the corporation, order the sale by a plaintiff or a defendant of all shares of the corporation held by the plaintiff or defendant to either the corporation or the moving shareholders, whichever is specified in the motion, if the court determines in its discretion that an order would be fair and equitable to all parties under all of the circumstances of the case.” Bad-faith conduct in the case can shift fees. Under subdivision 4, “If the court finds that a party to a proceeding brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, it may in its discretion award reasonable expenses, including attorneys’ fees and disbursements, to any of the other parties.” More on court-ordered buyouts under § 302A.751.

How is the buyout price set when the estate disputes it?

The price in a binding agreement governs as a contract term, and a Minnesota court applying § 302A.751 must use it unless the price or terms are unreasonable. Without an agreement, a partnership uses the statutory formula and a corporation’s court-ordered sale uses fair value.

Under § 302A.751, subdivision 2, “The purchase price of any shares so sold shall be the fair value of the shares as of the date of the commencement of the action or as of another date found equitable by the court.” The statute then turns to shares already subject to purchase under the bylaws, a shareholder control agreement, the terms of the shares, or otherwise. For those shares, “the court shall order the sale for the price and on the terms set forth in them, unless the court determines that the price or terms are unreasonable under all the circumstances of the case.” Under subdivision 3a, “any written agreements, including employment agreements and buy-sell agreements, between or among shareholders or between or among one or more shareholders and the corporation are presumed to reflect the parties’ reasonable expectations concerning matters dealt with in the agreements.” In a general partnership with no agreed price, § 323A.0701(b) uses the greater of liquidation value or going-concern value.

Price disputes with an estate can arise from these drafting choices:

• A fixed dollar price set years before death and never updated, which invites the argument that the price is unreasonable.
• An appraisal clause that does not say who picks the appraiser, what standard of value applies, or whether discounts for a minority interest or lack of marketability apply.
• Payment terms that leave interest, security, or the length of an installment note unstated.
• Offsets for money the deceased owner owed the company, which § 323A.0701(c) requires in a partnership and which an agreement for any entity type should state, so the offset is not left to argument.

When the agreement uses appraisal, the appraisal mechanics can decide the outcome; appraisal-based pricing covers those choices in detail.

How does federal estate tax affect the price and insurance funding?

The estate’s federal estate tax value can differ from the price in your agreement. A price below fair market value is disregarded for estate tax unless it meets three statutory tests, and company-owned life insurance used to redeem the shares can increase the shares’ value.

Under 26 U.S.C. § 2703, value for estate tax purposes is determined without regard to “any option, agreement, or other right to acquire or use the property at a price less than the fair market value of the property (without regard to such option, agreement, or right), or” any restriction on sale, unless the arrangement meets three tests: “It is a bona fide business arrangement.” “It is not a device to transfer such property to members of the decedent’s family for less than full and adequate consideration in money or money’s worth.” “Its terms are comparable to similar arrangements entered into by persons in an arms’ length transaction.” An estate that owes tax on a value above the agreement price has a reason to resist that price.

Funding structure matters too. In Connelly v. United States, 602 U.S. 257 (2024), two brothers’ corporation owned life insurance on each of them to fund a redemption of a deceased brother’s shares. The Supreme Court held, for federal estate tax, that “An obligation to redeem shares at fair market value does not offset the value of life-insurance proceeds set aside for the redemption because a share redemption at fair market value does not affect any shareholder’s economic interest.” The family in that case did not use the appraisal its agreement called for, and the Court said it was not holding that a redemption obligation can never reduce a corporation’s value. The Court observed that a cross-purchase agreement, in which the owners insure each other, would have sent the proceeds to the surviving brother instead of the company. The Court also noted, “Not all estates are subject to the estate tax.” Minnesota’s estate tax starts from the federal base: under Minn. Stat. § 291.016, subd. 1, “the Minnesota taxable estate equals the federal taxable estate as provided under section 2051 of the Internal Revenue Code, without regard to whether the estate is subject to the federal estate tax,” and subdivision 3 subtracts an exclusion amount of “$3,000,000 for decedents dying in 2020 and thereafter.” More on cross-purchase and redemption agreements.

What Should a Surviving Owner Do First?

A surviving owner of a Minnesota company should start with the agreement and the personal representative. I suggest reading the operating, partnership, or buy-sell agreement first for its trigger, buyer, price formula, payment terms, and any notice period, because a missed notice period can cost the right to buy. The next step is confirming who holds letters as personal representative, because that person holds the power over the estate’s title under § 524.3-711. The price the agreement or statute requires, sent with the company’s records, gives the personal representative what is needed to decide. If you are also the personal representative, I suggest arranging consent after fair disclosure from every person interested in the estate, or court approval after notice, under § 524.3-713 before closing. If the company has no agreement, the entity type decides what you can require, and business succession planning for the next owner is worth doing once the buyout closes.

If you would like me to analyze a buyout after a co-owner’s death, email me at [email protected] with a brief description. I can tell you what your agreement requires, who must sign for the estate, and how the price should be calculated. I start an intake and conflict check before you send confidential documents, such as the agreement or the company’s financial statements. More on these disputes is on my trust and estate litigation page.