How to Change Ownership of an LLC: Everything to Know
Transferring ownership can occur in a number of ways, depending on how you plan to change the ownership of your limited liability company.3 min read
If you're wondering how to change ownership of an LLC, it is critical that you take a proactive approach. Transferring ownership can occur in a number of ways, depending on how you plan to change the ownership of your limited liability company. For example, adding a new member will require a different approach in comparison to selling the company. The rules and regulations to do so will also vary from state to state.
How to Transfer Ownership of an LLC
At some point in the life of an LLC, many of these businesses have a change in ownership. The reasons why a change in ownership occurs may be because of one of several reasons, including:
- An LLC member has left the company
- Current members would like to bring on a new member
- A member has passed away, becomes disabled, or divorced
- You would like to sell the business
The procedure used to change ownership will depend on whether you're transferring over the entire business or are just changing the names and/or percentage of ownership. This would be the case when you are bringing on a new member or a preexisting member is leaving.
In most states, this process can be rather costly—not to mention complicated. However, this is not the case in Delaware, a state known to be a great place for LLC formation.
When you decide to create an LLC in Delaware, all that's required is the certificate of formation. This documentation includes just three pieces of information:
- Your Delaware LLC's name
- The name and address of your Delaware-based registered office
- The name of your registered agent, who must reside in Delaware
Unlike other states, you do not need to include the members' names, the percentage of ownership, or address. This means that little information is made public. In fact, this type of information is kept private, filed internally within your LLC's operating agreement.
Transferring a Partial Interest in the LLC
In an LLC, owners are referred to as members. Individual members will own a percentage of the company, which is known as their membership interest. When the time comes to make changes in terms of ownership, member interests will also change.
To guide you through this process, you should refer to your operating agreement. Most often, this agreement is signed when the LLC was first formed. If you created this type of contract, refer to your section on buyout provisions or buy-sell. In some cases, you may have a separate agreement that deals with these types of provisions.
If your LLC does not have an agreement in place, refer to your state's statutes to better guide you through this process. Unfortunately, some states will require you to dissolve the company if your operating agreement does not include the transfer of ownership.
Since these types of actions can lead to serious consequences for your business, especially in the future, it is recommended that you seek the assistance of a lawyer. When you do, this is the perfect time to review your current operating agreement to ensure that it meets your current needs.
Selling an LLC
If you decide to sell your LLC, you will need to first find a buyer. At that point, you will decide on a price. This step may involve the assistance of a business valuation expert. He or she will review your company's books and records to better assess its value.
It is important to note that you can sell either your LLC in its entirety or a portion of the company. Regardless, the sale of an LLC can lead to complicated tax, legal, and financial implications. Once again, when you are selling your LLC, you should seek the advice of a lawyer. He or she will help protect you and your assets.
Whether you would like to add another member to your LLC or plan to sell the entire company, it is important you understand the possible consequences of your actions. If you are not currently interested in changing the ownership of your LLC, now is the perfect time to review your operating agreement. If you have any questions or concerns, seek immediate legal advice.
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