LLC Transfer Of Ownership: Everything You Need to Know
An LLC transfer of ownership will change the percentage of ownership interest or allow you to add new members.4 min read
An LLC transfer of ownership will change the percentage of ownership interest or allow you to add new members. Though typically straightforward, in some instances, changing the percentage of ownership within your limited liability company is more complicated and may even require legal counsel.
Changing the Ownership of a Limited Liability Company
Typically outlined in the LLC's operating agreement, changing ownership will require a buy-sell agreement. This is a fairly common step during the lifetime of limited liability companies. In fact, ownership may change for a number of reasons, including:
- A member no longer wants to be a part of the company
- Existing members would like to bring on a new member
- A member becomes disabled, divorced, or unexpectedly passes away
- The owner(s) wish to sell the entire company
Regardless of why you would like to change ownership, you must make these official changes in all of the organization's certificates. If not, liabilities of a leaving member could lead to serious consequences in the future.
The actual process to change ownership will depend on a number of factors. For example, do you wish to sell the whole company or change the percentage of member ownership? To begin, review your operating agreement.
How to Transfer Ownership in an LLC
Depending on how you originally organized the company, an LLC transfer of ownership can be rather easy or it can be challenging. Here are some factors that you should be aware of.
- Since LLC's are state entities, rules need to be followed on a state-to-state basis.
- To complete a transfer, understand all of the state statutes. For example, you may require unanimous consent from all members.
- You should create an operating agreement that either makes it easy or more challenging to accept new owners, transfer percentages, etc. You should also consider certain restrictions that make sense for your business.
Know that your operating agreement can be altered at a later date based on the evolving wishes of the members. If you are transferring ownership, go to the secretary of state's website to download a "Statement of Information" — which is required when the LLC's owners are near the end of that year's filing period. If owners are mid-year, download the "Amended Statement" document to update all relevant information. Once you have completed the appropriate form, all new and old members will need to sign. The form will then be submitted to the secretary of state along with all applicable fees.
Transferring a Partial Interest in the LLC
In an LLC, owners are referred to as "members" and each member will own a percentage of the business. This is also known as membership interest. Whether the owner would like to alter percentages or add new members, there will need to be a transfer of membership interests. All buy-sell provisions should have been outlined in your operating agreement at the time of formation.
In some cases, LLCs will have a separate buy-sell document that outlines this agreement. Within this agreement, a method will generally be listed along with possible restrictions. This document will outline what needs to be accomplished to approve a transfer. If your LLC does not have an operating agreement or it does not include a buy-sell agreement, you should refer to the state statutes.
Selling an LLC
Your LLC's buy-sell agreement will not offer specific guidance on how to sell your company. Instead, it will list the way in which members can complete transfers among themselves and new members. When selling your LLC, you must first finder a buyer and agree on a certain price. After examining your records and books, the buyer may wish to buy all of your company or part of your company.
Although this may seem like a straightforward process selling your LLC can lead to various legal, financial, and tax-related implications. This is why it is best to consult a lawyer who has experience in this area. At first, a term sheet may be created followed by a more formal contract. This is also why operating agreements are recommended when you first form, including all buy-sell provisions. This can help the process run more smoothly when the time comes.
Changing the ownership of your LLC is a large decision, one that could significantly influence the company's long-term success. This is why you must understand the weight of each decision — as well as the requirements involved. Whether you have considered transferring a partial interest or you would like to sell 100 percent of your LLC, there is assistance available.
If you need help with an LLC transfer of ownership, 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.