Selling a LLC

When selling a LLC, there are certain procedures to follow, especially when it comes to ownership transfers. Many LLCs change ownership during the lifetime of the business. Such reasons could include:

  • A member deciding to exit the business
  • Existing members wishing to add new members
  • A member dying, or becoming unable to participate in the business due to divorce or disability
  • Deciding to sell all of the business

The transfer process depends on if you’re transferring all or a portion of the business, and how many members are involved. LLC owners are also called members, and each member owns a certain stake in the LLC, also called a membership interest. If you need to change an ownership percentage, for instance, you would have to transfer a portion of the membership interest to another party.

Operating Agreement

A key document to guide you through the process is your operating agreement. An operating agreement establishes certain operating procedures and the general management structure of your business.

Further, you should include provisions in the event of the selling the company, and you may tailor such sections to your liking. You should also include sections regarding ownership transfers, or your business could have a separate buyer-seller agreement.

Such provisions usually detail methods on the value of the business and the membership interests. The provision may also outline the following:

  • Certain restrictions on who qualifies for members
  • Rules mandating the buy-back of shares from departing members
  • Parameters on approving new transfers

Buy-Sell Provisions

If the agreements does not have a buy-sell provision, you should check with the guidelines of your state on how to proceed with a membership transfer. You could negotiate a better agreement in order to obtain the right transfer that suits your needs. In certain states, you may need to dissolve the business if the agreement does not allow for ownership transfers. Because such actions have long-term ramifications on your business, you should always talk to a lawyer.

Moreover, you should also review the operating agreement to ensure that the document is current and meets all of your core standards as you go through membership changes. For instance, operating agreements for sole-members LLCs may not have certain provisions needed for multi-member LLCs. If you have an old operating agreement that’s out of date, you should draft a new one that shows the new ownership system, and you should sign it accordingly, along with other members.

If a new agreement needs to be changed, you can amend it to include newer members. You usually do not have to file any paperwork with state officials to finalize a member transfer process, but you need to include a list of new members on future annual reports.

LLC Governance

Despite the name, a buyer-seller agreement does not provide guidance in selling all of the business to third parties. Rather, it governs the manner in which members transfer interests within the business and to new members.

To successfully sell your LLC, you need to get a buyer and settle on a price. Such a move may involve the following:

  • Invoking the services of a business value expert
  • Getting the buyer to look at your records and business books

You may also use a combination of the two aforementioned ideas. Also, the buyer may wish to buy the entire business or may only wish to buy the assets. Selling the LLC may come with tax and legal implications, which is why should you turn to a lawyer before selling the business. The sales terms may be noted in a memorandum of understanding or term sheet and a formal agreement.

You should always plan for the future by including buyer-seller provisions in the operating agreement. Buyer-seller terms can aid in the transfer process and avoid complications. If you do not have a buyer-seller agreement, or if you want to sell all of the LLC, getting legal counsel would be the best option.

You should get a lawyer to avoid messy legal and tax ramifications, and many lawyers specialize in such business deals. Moreover, attorneys can guide you in obtaining the right tax qualifications from the sale of an LLC, and they will help you avoid legal entanglements throughout the transaction.

If you have more questions on selling a LLC, submit your legal inquiryto our UpCounsel marketplace. UpCounsel’s lawyers have graduated from some of the best law schools in the county and will give you the best advice on selling an LLC, or any business entity. In addition, they will guide you in drafting an operating agreement that you and all members of an LLC can agree to.