Business Owner Name Change: Everything You Need to Know
In regard to a business owner name change, you must notify state authorities if you wish to change your company name and have a plan outlining the transfer.3 min read
In regard to a business owner name change, you must notify state authorities if you wish to change your company name. Each company owner should have a plan outlining the steps that must be utilized when the transfer of a business occurs. Changes in ownership occur for several reasons, such as:
- The existing members want to usher in a new member
- A member dies, enters bankruptcy, becomes disabled, or gets divorced
- You decide to sell the company
- The member decides to exit the company
The procedures in transferring LLC ownership depends on if you’re shifting the entire business or only changing the percentage shares and names of the members. This could happen when you accept a new member or wish to buy out an existing member. You have a variety of options if you want to transfer the business to another person or individual. First, the owner may sell his or her business in an outright or gradual fashion, whether it pertains to a sale or lease.
Direct Selling the Company
Another alternative plan is entering into a lease-own agreement to transfer a company to another person. Take note of other methods when it comes to channeling ownership shares, which is outright selling the company. Contact a business broker and ask if that person has clientele seeking to purchase your kind of company. Also, ask about the number of companies that are currently selling within your industry. Business brokers may also help in the selling and marketing of your business, increasing your chances of getting it sold. Take note that the IRS mandates a buyer to apply for a new employer identification number upon selling a company.
A lease-purchase contract does not provide guidance on how to sell all your business to another party. Rather, it only manages the way that members transfer membership shares among themselves or additional members.
To sell your LLC, for instance, you need to find an interested party and agree on a price that suits you and that other person. You may also need the services of a company valuation expert who will assess your records and books. It could also be a combination of the two methods. The buyer may want to buy the entire LLC or may only want to buy certain assets.
Selling LLCs can have complicated legal, financial, and tax ramifications, which is why you should contact a lawyer who has expertise in this area. The sale terms may be noted in a memorandum or term sheet, followed by an agreement that’s more formal. You should always plan for company ownership transfers by noting lease-purchase sections in an operating agreement.
Lease-purchase contracts may help transfers in avoiding roadblocks to your business endeavors. If you do not have a purchase agreement in place, or if you wish to sell all the business, you may want to retain the services of an attorney.
Gradual Sale Option
When it comes to gradual sales, all members owning a share of the company are known as a membership interest. If you wish to change ownership percentages or add additional members, you must transfer at least a portion of your LLC membership interest. Gradual sales occur when the company owners offer assets or a percentage of the company over a certain period, with a set amount to be sold annually until the transfer process is finished.
For example, you may sell 20 percent of a company each year over five years to complete a gradual sale.
Your operating agreement is the most vital document you’ll need to complete the ownership transfer process. The operating agreement is comprised of the rules and operating procedures of your business, and you most likely signed it when creating your LLC. The operating agreement should also detail membership transfer plans, including what would happen if the business is sold, or if a member decides to depart.
If your agreement includes a lease-buy provision, it should govern how you will transfer ownership shares. Additionally, your company may have a distinct lease-purchase agreement. The lease-purchase provision will usually note a method in assessing value on the membership interests and the business.
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