Key Takeaways

  • A membership interest purchase agreement (MIPA) transfers LLC ownership rights, unlike stock in a corporation which is freely transferable.
  • The agreement typically includes details on price, interest percentage, warranties, liabilities, intellectual property, and employee matters.
  • Transfers may be restricted by the LLC’s operating agreement or state law, requiring consent from existing members.
  • Single-owner LLCs benefit from a simplified purchase agreement, but should still include provisions on liabilities, indemnities, and representations.
  • Buyers and sellers use MIPAs to clarify financial obligations, protect against hidden debts, and establish binding terms for successors.
  • Legal guidance is strongly recommended to ensure compliance and avoid disputes.

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 are a single buyer and seller. It also assumes that the signing and closing of the transaction are not simultaneous.

What Is a Membership Interest Purchase Agreement?

A membership interest purchase agreement (MIPA) is the legal document used to transfer an ownership stake in a limited liability company (LLC) from one party to another. Unlike an asset purchase, which sells specific property or business assets, a MIPA conveys the seller’s entire interest—including rights to profits, losses, voting, and management. In practice, this means the buyer steps directly into the shoes of the seller as an LLC member.

These agreements are common when:

  • A member wishes to exit the company.
  • New investors are buying into an LLC.
  • A full transfer of ownership is preferable to selling individual assets.

Because membership interests are not as freely transferable as corporate stock, MIPAs must align with the LLC’s operating agreement and applicable state law.

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 agreement 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 for 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.

Key Legal Considerations in Transfers

When drafting or negotiating a membership interest purchase agreement, parties must carefully address legal restrictions on transfers. Many LLC operating agreements require:

  • Unanimous or majority member approval before admitting a new member.
  • Right of first refusal provisions, giving existing members the chance to purchase interests before outsiders.
  • Restrictions on assignment, where a buyer may only gain economic rights (profits and losses) but not management rights unless approved.

Additionally, some states automatically restrict transfers that would change control of the LLC without the consent of other members. If these steps are skipped, a transaction may be invalidated.

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.

Membership Interest Purchase Agreements for Single-Member LLCs

In a single-member LLC, a membership interest purchase agreement is typically simpler but still essential. The agreement documents the sale of the sole ownership interest to another party, effectively transferring control of the entire business.

Key provisions for single-owner transfers often include:

  • The purchase price and how it was determined.
  • Assumption of debts and liabilities, if applicable.
  • Representations and warranties ensuring that no undisclosed obligations exist.
  • Continuity clauses that ensure business operations continue seamlessly after the transfer.

Even when only one member is involved, a written purchase agreement protects both buyer and seller by providing a record of the transaction.

Essential Provisions to Include

A comprehensive membership interest purchase agreement should go beyond basic transfer language and cover protective provisions for both buyer and seller, including:

  • Purchase Price & Payment Terms: Specify lump sum, installment, or promissory note arrangements.
  • Representations and Warranties: Seller affirms ownership of the interest, absence of liens, compliance with laws, and accuracy of financial statements.
  • Indemnification: Protects the buyer against hidden liabilities, pending lawsuits, or tax debts.
  • Closing Deliverables: Membership certificates (if issued), consents, updated operating agreements, and financial disclosures.
  • Covenants: Agreements about ongoing obligations—such as non-compete clauses or confidentiality.
  • Governing Law & Dispute Resolution: Designating which state law applies and whether disputes go to arbitration or court.

Buyers often request due diligence disclosures to verify that the LLC owns its intellectual property, is free from liens, and has no undisclosed obligations.

Frequently Asked Questions

  1. What is the difference between a membership interest purchase agreement and an asset purchase agreement?
    A MIPA transfers ownership of the LLC itself, while an asset purchase agreement sells individual assets without changing membership.
  2. Do all LLCs allow membership interest transfers?
    No. Transfers are often restricted by the LLC’s operating agreement and state law, requiring member consent before admitting new owners.
  3. What should a buyer check before signing a MIPA?
    Buyers should review the LLC’s operating agreement, financial statements, debts, pending lawsuits, and intellectual property ownership.
  4. Can a single-member LLC use a MIPA?
    Yes. A single-member LLC can transfer its entire ownership interest through a simplified MIPA, but should still document terms clearly.
  5. Why is legal advice important when drafting a MIPA?
    Attorneys help ensure compliance with state law, protect against liabilities, and draft provisions that minimize risk of disputes.

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