Transfer of LLC Membership Interest

Transferring LLC Interests

How to Assign or Transfer an Interest in an LLC

When an owner of an LLC (aka member) sells his or her interest in the LLC (aka membership interest), the transfer must be properly documented.

What steps and/or documents are needed to transfer an interest in an LLC?

First, the buyer and/or the seller will need to determine if there are any restrictions on the transfer of his membership interest. Typically, such restrictions (i.e. rights of first refusal) are found in LLC's governing document (aka company agreement) or perhaps typed on the physical membership interest certificates. We often dispose of any prerequisites or transfer restrictions via a resolution authorizing the transfer of membership interest.

The buyer and seller will typically enter into a purchase and sale agreement outlining the proposed terms of the deal. This agreement is often referred to as a Membership Transfer Agreement and will describe terms like (a) the purchase price; (b) when the proposed transaction is supposed to close/occur; (c) the seller's connection to the LLC going forward; (d) representations and warranties of the buyer and seller; (e) what state's laws will apply to the transaction, etc.

The actual membership transfer is accomplished by the execution and delivery of a Assignment of Membership Interest. Although there are many recommended steps and documents that should happen when someone buys or sells an interest in an LLC, the Assignment may be the most important. The Assignment is similar to a deed in that it is signed and delivered at closing. If the membership interest is represented by a certificate, the seller would endorse and hand over this certificate at closing.

At the closing or shortly thereafter, the buyer may need to sign the company agreement, update the LLC's membership transfer ledger, amend the certificate of formation, and/or provide notice to the IRS (if the tax classification or tax matters partner has changed).

Standard Membership Transfer Documentation

If you are buying or selling an interest in an LLC and would like to discuss with our business attorney, do not hesitate to contact us.