Interest Purchase Agreement: Everything: You Need to Know
An interest purchase agreement expresses ownership of a limited liability company and gives you voting and interest in the company.3 min read
Membership Interest Purchase Agreement
If you have a private limited liability company (LLC) in the United States, you might encounter a long-form agreement for purchasing and selling outstanding membership interests.
Drafted in favor of the buyer, the agreement assumes that there is a single buyer and seller. It also assumes that the signing and closing of the transaction are not simultaneous.
Transferring an LLC Interest Agreement
You cannot sell or gift the ownership interest or interest agreement used for an LLC to another party. This is unlike shares of stock in a corporation. However, you can transfer ownership interests in LLCs to another person only if members of the partnership agree and state laws let the LLC have full-partner substitutions.
In certain cases, the law lets you transfer ownership interests, but this transaction doesn't allow the new person any rights to participate in operating the LLC. The individual only has the right to share in profits or losses.
A contract agreed upon between partners or members of a company is an operating agreement. This document states that members agree in writing to transfer ownership interest to the new party.
You should also draft a sales agreement between you and any authorized party to receive your share of the company. There is no specific format on the transfer of ownership interest within an LLC.
When writing the sales agreement, you should include the following:
- Mention the terms of the transfer.
- Include the date, interest percentage, and sales price.
- Sign and notarize the document.
Afterward, consult a LLC statute in the state where the LLC began. You should do this if your LLC does not have an operating agreement that mentions a buying and selling provision or if you cannot reach an agreement to transfer your interest with other members.
Complete the process by following owner transfer provisions based on your state's law. Provide other members with a written formal notice about transferring your interest.
LLC Membership Interest Purchase Agreement Contracts
When forming an interest purchase agreement contract, you should make sure the document specifies certain aspects. Some examples include the following:
- Include the name and address of the LLC as well as the other party entering into the agreement. Include the date when this takes place.
- State what the buyer intends to purchase from the LLC. Mention what the buyer will receive in transferable membership interests.
- Discuss when and where the closing takes place. Include information about what the parties shall bring to the closing, including membership certificates, a cross receipt that includes a purchase receipt, and a restated LLC agreement.
- Mention representations and warranties of the company. Add that the LLC remains organized and exists under the laws of a specific state.
- Talk about how the outstanding equity of the LLC transfers into membership interests. Also, include information about governmental consents and if they pertain to the sale.
- Point out that there are no lawsuits, proceedings, or other investigations pending against the LLC to the best of your knowledge.
- Include information about what happens to the employees. This includes employment contracts, deferred compensation, bonuses, incentives, retirement plans, and profit sharing plans.
- Mention that the LLC has ownership and rights to specific trade secrets as well as all copyrights, proprietary rights, trademarks, and trade names. It also has all franchises, licenses, permits, and other authority in order to conduct business.
- Explain that the LLC is free and clear of all mortgages, liens, and other assessments unless otherwise mentioned. The LLC must also deliver an audited statement of financial position to the buyer.
- State that except for agreements already listed, the LLC has no other understandings, agreements, or proposed transactions between it and officers, affiliates, directors, or any other type of affiliate.
- Point out that unless otherwise stated, the provisions are binding as adhered to by the LLC's successors, heirs, administrators, and executors. Include that the rights of the buyer to purchase membership interests cannot occur unless the LLC offers consent.
- Mention that the entire agreement and other documents supersede all other prior agreements.
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