How to Transfer LLC Membership Interest
To understand how to transfer LLC membership interest, individuals must read the requirements provided in the limited liability company's operating agreement.3 min read
Transferring LLC Membership Interest
An owner, also known as a member, of an LLC owns a part of the business. This ownership is also called interest. An owner may choose to transfer his or her interest to another individual for reasons such as:
- Leaving the business.
- Financial purposes.
- Personal reasons.
Usually, the LLC's operating agreement contains the requirements that oversee the transferring of an owner's interest.
The following are steps to take when determining how to transfer membership interest:
- Look over the LLC's operating agreement.
- If the operating agreement doesn't cover transferring interest, then read the applicable state laws regarding LLCs.
- Determine the worth of the membership interest.
- Complete the required tasks and paperwork.
- Acquire a transfer document.
- Sign and date the document.
When looking through the LLC's operating agreement, search for the section that discusses the qualifying reasons for transferring one's interest along with how to do so. It should also list any specific requirements or restrictions that pertain to the LLC as well as a method for calculating the worth of the owner's interest.
If the operating agreement does not discuss the details of transferring membership interest, then the state's LLC law should provide insight into what to do. If the operating agreement doesn't provide a method for calculating the value of the interest, then the owner must discuss with the other members of the LLC to determine its worth. The owner should have the LLC's financial documents and the documentation of his or her distributions on hand when meeting with other members.
Required tasks and paperwork for transferring membership interest should be listed in the operating agreement. For instance, the agreement might state that all members of the LLC must approve the transfer in writing prior to transferring.
To acquire a transfer document, the owner should first determine if the LLC has a standard form. If it does not, then (s)he might have to draft a form. He should verify that the requirements provided in the operating agreement or by state law are met. These requirements usually include the following:
- The owner's name
- The name of the LLC
- The recipient's name
- The percentage of interest being transferred
If all of the interest is being transferred, that must be stated in the transfer document.
After the owner signs and dates the document, he should make multiple copies for his records, the LLC, and the new owner. Usually, the document is given to the recipient; however, the owner should verify whether or not the LLC should be given the original.
State Laws Governing the Transfer of Membership Interest
Every state provides standard rules that oversee an LLC in the event that its owners did not provide rules in the operating agreement; however, these rules can vary from state to state.
For example, Section 608.432 of the Florida Statutes states that a member of an LLC cannot transfer interest unless permitted in the operating agreement, or a majority of the non-assigning owners agrees to the transfer. In contrast, Article VI Section 603 of the New York Statutes declares that unless the LLC's operating agreement prohibits the transfer of interest, an owner can transfer interest either in whole or in part. These two states take opposite approaches to the transferring of membership interest. Both approaches are common, so the steps one takes when transferring membership interest will depend on the state that governs the LLC.
Investing in Membership Interests Versus Real Estate
When purchasing real estate in Wisconsin, a buyer must pay a transfer fee to the state of .3 percent of the buying price. Furthermore, the purchase price is considered when determining the value of the property, which usually results in increased property taxes.
To avoid these extra costs, individuals can buy the membership interests of the LLC that owns the real estate being purchased. This gives the individual control of the real estate without changing the actual ownership.
If you need help transferring LLC membership interest, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.