Key Takeaways:

  • Delaware LLCs allow ownership changes without state filings; updates are made within the operating agreement.
  • Transferring ownership in a Delaware LLC can be done through membership interest sales, buy-sell agreements, or inheritance.
  • Corporations require shareholder approval for amendments to the certificate of incorporation when changing ownership.
  • Updating state and federal records is necessary for tax, banking, and compliance purposes.
  • Delaware law provides flexibility by not requiring member details in public records, making changes more private.
  • Proper documentation such as contracts and tax filings is crucial to avoid legal and financial risks.

Delaware corporation change of ownership requirements are unlike those in any other state. Typically, changing ownership for an LLC is complicated and expensive, but this isn't the case in Delaware.

Changing LLC Ownership in Delaware

While many states require extensive documentation, Delaware only requires a Certificate of Formation, which must include three key components:

  • Name of the Delaware LLC
  • Name and address of the registered office
  • Name and contact information for the registered agent in Delaware

Delaware law does not require the names or addresses of LLC members, keeping this information out of the public record. Information is only filed internally with the LLC operating agreement. Instead of filing changes with the state of Delaware, the operating agreement can easily be changed by members.

Common changes are adding or removing a member or altering a person's percentage of ownership in the LLC. The operating agreement is required to be signed by all members to be valid, but the LLC isn't required to file the new operating agreement with the state of Delaware.

Methods of Transferring Delaware LLC Ownership

Changing ownership in a Delaware LLC typically involves selling, gifting, or transferring membership interests. Unlike corporations, LLCs have flexibility in structuring ownership changes. Here are the primary methods:

  1. Selling Membership Interest – A member can sell their ownership percentage to another individual or entity. The terms should be outlined in a membership purchase agreement, and the operating agreement must be updated accordingly.
  2. Buy-Sell Agreement – If the LLC has a buy-sell agreement, it dictates how ownership transfers occur, including valuation methods and approval requirements.
  3. Inheritance or Succession – When a member passes away, ownership interest is distributed based on their estate plan or the terms of the operating agreement.
  4. Adding or Removing Members – The LLC’s operating agreement should specify the process for admitting or removing members, including how votes are conducted and recorded.

No Delaware state filings are required for internal ownership changes, but updating financial and tax records is necessary.

Changing a Certificate of Incorporation in Delaware

The Delaware Secretary of State’s website provides downloadable forms for amending a Certificate of Incorporation, allowing businesses to easily access and submit updates. The Delaware Secretary of State's Corporations Division offers a downloadable form for amending provisions in the certificate of incorporation. This form is for any changes to the incorporation documents aside from changing the name and address of the registered agent.

An amended certificate is attached to the original form as an addendum. If a business wants its certificate of incorporation to be a single document, it must use the state's corporation statute as a guide to draft the amendment and restate articles from scratch.

Step 1: File a corporate resolution to make an amendment. Under Delaware law, any changes to the certificate of incorporation must be agreed to by a majority of shareholders. Companies must call a meeting of the board of directors and open a discussion about the proposed change. The minutes of that meeting and the vote of the board of directors must then be sent to the shareholders for their vote.

Step 2: Call for a shareholder meeting to consider the amendment. The shareholders should vote on the proposal. The record of the vote is added to the meeting minutes. In order for the amendment to proceed, a majority of shareholders must vote in favor.

Step 3: File a certificate with the Delaware Division of Corporations. The certificate of amendment form is available online. A separate certificate is required for each new provision. If you choose to skip this step and file a new amended and restated certificate of incorporation, you will be required to pay an additional filing fee. Filing a certificate of amendment first also helps prove that the provision was approved by shareholders.

Step 4: File an amended and restated certificate of incorporation. If other amendments have been filed through a certificate of amendment, you can copy the formatting of the original certificate of incorporation and include the older amendments already in place. The most important changes for the form are a new document title and a new paragraph at the beginning stating that the provision was adopted legally. The paragraph should also state that the provision integrates with but doesn't further amend the original certificate of incorporation.

If the provision does further amend the certificate of incorporation, the new paragraph should detail how the new amendment was approved by the board of directors and a majority of shareholders.

Step 5: File the amended certificate with the Delaware Division of Corporations. A filing fee is required, along with an additional $9 for each page beyond the first. If the amendment increases the number of authorized shares, additional fees may apply based on Delaware’s fee schedule. More information can be found on the Division of Corporations website.

Included with your certificate should be a cover letter with a company representative's name and contact information.

After the new certificate has been accepted, it overrules the original certificate of incorporation. Any future amendments will use the restated certificate. The corporation's date of incorporation will stay the same.

Updating Legal and Tax Records After Ownership Change

Once an ownership change occurs, several entities and records should be updated to ensure compliance:

  1. IRS and Tax Agencies – If the LLC’s tax structure changes (e.g., single-member to multi-member LLC), the IRS may require a new Employer Identification Number (EIN). Tax documents such as Form 8832 for tax classification changes should be submitted.
  2. State Franchise Tax – Delaware requires annual franchise tax payments; ownership changes don’t affect this requirement, but new members must be aware of their obligations.
  3. Banking and Financial Institutions – Update bank accounts, business loans, and credit lines to reflect the new ownership structure.
  4. Licensing and Permits – Any business licenses or industry-specific permits should be updated to reflect new ownership.
  5. Contracts and Agreements – If the business has existing contracts with vendors or partners, ownership updates should be communicated, especially if the new structure impacts liability or responsibility.

Proper documentation ensures a smooth transition while maintaining business continuity.

Frequently Asked Questions

1. Does Delaware require LLC ownership changes to be filed with the state?

No, Delaware does not require LLCs to file ownership changes with the state. Changes are made internally through the operating agreement.

2. Can an LLC member sell their ownership without approval?

It depends on the operating agreement. Some agreements require unanimous consent from existing members, while others allow sales without restrictions.

3. Do I need a lawyer to change LLC ownership in Delaware?

While not legally required, consulting an attorney can ensure compliance with tax laws and prevent legal disputes.

4. How does an ownership change affect LLC taxes?

If ownership changes significantly, the IRS may require a new EIN. The LLC's tax classification may also change from a single-member LLC to a multi-member LLC.

5. What happens if an LLC member dies?

The ownership interest is transferred based on the terms of the operating agreement or the deceased member’s estate plan.

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