Key Takeaways

  • Selling an LLC membership interest can affect management control, especially in multi-member LLCs.
  • Your LLC Operating Agreement governs the terms of a sale, including valuation, consent requirements, and right of first refusal.
  • Without a buy-sell agreement, selling your interest may require member approval or even dissolution in some states.
  • You can sell a partial interest, add new members, or transfer full ownership, depending on your goals.
  • Tax, legal, and financial implications should be carefully evaluated—consulting a lawyer is highly recommended.

The sale of LLC membership interest sometimes comes about due to a change in ownership at some point during the lifespan of the business. Ownership changes happen for many reasons, but the need to sell is the same regardless.

Selling an Interest in an LLC

When you decide to sell a percentage ownership in your LLC, it has consequences for the management of the business. As you know, the LLC is formed through state law and managed as a partnership. All owners, also known as members, are afforded an equal right to participate in the company management. When you sell your percentage to an outsider, you are bringing in a partner who has the same authority as you do even if you retain a majority ownership in the LLC.

When you decide to sell your LLC, you need to sell your membership interest through a bill of sale. If you are a single member LLC, you have the right to sell your interest(s) for any amount you name. But if you're an LLC with multiple members, there may be rules in the Operating Agreement that set the value of the LLC. And there may also be rights of refusal to give the other members in the LLC the opportunity to buy or pass on your shares. 

Once you decide to sell your shares of the LLC, you need to file Articles of Amendment with the state agency that governs your LLC. The procedure used to transfer ownership of the LLC depends on whether you're transferring the entirety of the business or changing the percentage ownerships and names of the ownerships. 

Key Documents Required to Sell LLC Interest

Selling your LLC percentage involves more than a handshake. Proper documentation ensures legal compliance and clarity for all parties involved. Essential documents include:

  • LLC Operating Agreement – to review transfer clauses and buy-sell provisions.
  • Bill of Sale – to transfer ownership of the membership interest.
  • Membership Interest Purchase Agreement – outlining terms, price, conditions, and obligations.
  • Amended Articles of Organization (if required by your state).
  • IRS Form 8822-B – to notify the IRS of any change in responsible party.
  • Updated IRS EIN records and state registration documents (if selling full ownership or changing the responsible member).

These documents help establish a formal record of the transaction and prevent future disputes.

Reasons for Selling LLC Interest and Strategic Considerations

Selling your percentage of an LLC may stem from various strategic, personal, or financial reasons. Common scenarios include:

  • Retirement or exiting the business
  • Raising capital by selling to investors
  • Internal disputes among members
  • Reorganization of business ownership
  • Succession planning

When asking, "Can I sell my percentage of an LLC?", consider whether you’re selling to an existing member, a new investor, or transferring control to a relative. Each case brings unique operational and tax implications. Strategic planning helps minimize disruptions, especially if your sale results in a change of control that affects the LLC’s operations or tax status.

Transferring a Partial Interest

The parties involved in an LLC are known as members. Each member has ownership of a percentage of the business. This is known as a membership interest. Changing the percentage of ownership or adding new members means that there's a need to transfer some of the membership interests of the LLC. Most states allow the addition of new members only with unanimous consent from the existing members. 

The ownership structure of an LLC requires 100 percent of ownership to be allocated to existing members. If a new member is to buy into the company, their ownership percentage comes out of the percentages held by the existing members. The Operating Agreement specifies how the sale and transfer of ownership is handled. In the event the Operating Agreement does not have a buy-sell agreement, you should check with your state statutes to learn how to handle the transfer of membership interests. Some states may require the dissolution of the company if there is no buy-sell agreement laid out in the Operating Agreement. 

Valuing a Membership Interest in an LLC

Determining how much your percentage of the LLC is worth is often the most challenging part of the sale process. Methods commonly used include:

  • Asset-Based Valuation: Based on the net assets of the company.
  • Income-Based Valuation: Projected future earnings discounted to present value.
  • Market-Based Valuation: Comparing with sales of similar businesses or interests.

If the Operating Agreement specifies a valuation method, it must be followed. Otherwise, hiring a business valuation expert or CPA ensures fair pricing. Note that lack of liquidity and limited control (for minority interests) often reduce the fair market value.

Selling an LLC

Selling your LLC may be a complex affair due to the legal, financial, and tax implications involved. It's best to consult with a lawyer before engaging in a sale of the LLC for the best possible outcome. And if you plan to sell your LLC or your share at some point in the future, it's a good idea to have a buy-sell agreement included into the Operating Agreement. 

The transaction is more likely to proceed smoothly if your Operating Agreement has a buy-sell agreement. In the event you don't have a buy-sell agreement, again, you may want to consult with a lawyer for the best possible way in which to proceed. 

Once you have the buy-sell agreement situation settled, you need to determine the value of the ownership percentage. It can be difficult to determine a value, especially if the company has been closely-held. Current members may base the buy-in price on their contributions made to the company over the period of its existence.

After the terms of sale are negotiated, a written membership interest sales agreement can be created to record the transaction. This agreement should detail the new member's ownership percentage, the amount of the buy-in, and require that the new member agree to be bound by the existing Operating Agreement of the LLC. Once everything has been settled and signed off by the remaining members, the new member can take your place while you make your exit.

Tax Implications of Selling LLC Interest

Selling your LLC interest triggers tax considerations that vary based on:

  • Whether the LLC is taxed as a partnership, corporation, or disregarded entity
  • The structure of the sale (asset sale vs. membership interest sale)
  • Capital gains or ordinary income treatment

Generally, selling a membership interest results in a capital gain or loss. However, certain assets (like inventory or unrealized receivables) may trigger ordinary income, known as “hot assets.” The IRS treats these differently, so professional tax advice is essential.

In multi-member LLCs, the buyer may need to file IRS Form 1065 (Return of Partnership Income), and both buyer and seller must report Schedule K-1 information accurately.

Steps to Sell a Percentage of an LLC

Here’s a breakdown of the steps involved when you want to sell your LLC percentage:

  1. Review the Operating Agreement – Identify any transfer restrictions or rights of first refusal.
  2. Get Member Consent – Obtain written approval if required by the agreement or state law.
  3. Determine the Value – Agree on a fair price using a suitable valuation method.
  4. Draft the Sales Agreement – Outline the sale terms and include clauses about warranties and indemnification.
  5. Update Legal Documents – Amend the Operating Agreement and file Articles of Amendment with your state if necessary.
  6. Notify Relevant Authorities – Update the IRS, banks, vendors, and licensing bodies.

Following a structured process reduces risk and ensures all obligations are met.

Alternatives to Selling Your LLC Percentage

If you're asking, “Can I sell my percentage of an LLC?” but aren't ready for a full sale, there are alternatives:

  • Gift the interest to a family member (with potential gift tax implications).
  • Create a profit-sharing arrangement instead of transferring equity.
  • Set up a silent partnership, allowing someone to invest without managerial control.
  • Bring in an investor with convertible notes that may turn into equity later.

These strategies can provide financial relief or succession solutions without relinquishing full control.

Frequently Asked Questions

Can I sell my percentage of an LLC without the other members’ consent?It depends on your Operating Agreement. Many agreements require unanimous or majority approval before any interest is transferred.

How is an LLC membership interest valued for sale?Valuation is typically based on assets, income, or market comparisons. A CPA or valuation expert can provide an objective figure.

Do I need to update the LLC’s paperwork after selling my interest?Yes. You may need to amend the Operating Agreement, update Articles of Organization, and notify the IRS and state agencies.

What happens if I sell to someone outside the LLC?External sales often trigger rights of first refusal for existing members. New members must be approved and added officially.

Will I pay taxes when I sell my LLC percentage?Likely, yes. You may owe capital gains or ordinary income taxes depending on the nature of the assets involved in the sale.

If you need help with the sale of an 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.