Selling an LLC Business: Everything You Need to Know
If you are interested in selling an LLC business, you'll need to draft a bill of sale. Selling a single-owner LLC is simple; the owner can sell it for whatever price they want.3 min read
If you are interested in selling an LLC business, you'll need to draft a bill of sale. Selling a single-owner LLC is simple; the owner can sell it for whatever price they want. However, a multiple member LLC may involve following the rules laid out in the operating agreement.
Although selling an LLC is not a complicated matter, owners should first contact an attorney to create the bill of sale to make sure all is done properly. If the owner is buying membership interests from another member, a document called “articles of amendment” is need to show the change in the LLC membership. This should then be filed with the state agency with which the LLC is registered. Make sure a registered agent is still working to maintain the good standing of the LLC.
Why LLCs Change Ownership
- There are numerous reasons for changing the ownership of an LLC, such as:
- One of the members chooses to leave the company.
- Existing owners want to bring a new owner into the company.
- An existing member may have passed away, gotten divorced, or become disabled.
- One owner, or multiple owners, choose to sell the whole business.
The method by which LLC ownership changes take place depends on whether the LLC will have different owner names and percentages of ownership, or if the owners are entirely selling the business.
Partial Ownership Changes
Owners of an LLC are also referred to as members. In a multiple-owner LLC, each member owns their specific percentage of the company, also referred to as a membership interest. An owner who wants to change his ownership percentage must transfer some of his interests to another owner.
This is one important reason for having an operating agreement at the LLC's formation, even though most states do not require it. The procedure for doing this transfer will be specified in the operating agreement. This document should include provisions for buying or selling membership interests and the way they are accomplished.
LLCs may also have a buy-sell agreement that is separate from the operating agreement. This explains the method used for valuation of the membership interests. It may also lay out any restrictions about who may become a member or how transfers are approved. LLC members may be required to buy shares from a member who is leaving.
If such a document does not exist, state laws may be consulted for guidelines on how to transfer ownership in the LLC. A new buy-sell agreement may be drafted to deal with that specific situation. Some states require the LLC to be dissolved if the rules for transferring ownership are not specified in the operating agreement.
Situations such as this are a good reason for consulting with an attorney, because long-term consequences may arise from these actions. Operating agreements and other documents should be reviewed at this time to see if changes need to be made, such as switching from a single member to a multiple-member LLC. If needed, a new operating agreement should be composed to address the needs of the new ownership structure. Otherwise, an amendment listing new members may be drafted instead.
Most states do not require any documentation for ownership changes, but future annual reports must list current ownership information.
Complete Ownership Changes
Buy-sell agreements, whether they are part of the operating agreement or separate documents, do not usually cover how the business will be entirely sold; they only cover the transfer of ownership among members.
When an LLC is being entirely sold, the first thing that needs to happen is finding a buyer and agreeing on a sales price. A business valuation expert may be called in, and buyers may want to study the business's financial records, among other items. It's possible that the buyer will want to buy the entire LLC, or just its assets.
As the sale of an LLC can be complicated regarding both finances and taxes, it's a good idea to bring in an attorney with experience in buying and selling LLCs. Depending on the situation, sales terms are generally detailed in a memorandum, which is then followed by a formally structured contract.
If you need more information or help with selling an LLC business, 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.