How to Transfer an LLC Ownership

At some point in your entrepreneurial journey you may need to transfer ownership in your limited liability company (LLC), in part or in full. Maybe you’ll bring in a new partner, or a longtime colleague will decide to move on, or you’ll simply decide to sell your ownership share. 

Whatever the case may be, if your operating agreement fails to detail the relevant procedure, transferring ownership can be quite complicated. Lucky for you, this handy guide provides all the information you need to smoothly transfer partial or full LLC ownership. 

How to Transfer Partial Ownership 

1. Review the Operating Agreement/Articles of Organization

Your articles of organization may outline the ownership transfer procedure, but it’s more likely to be in your operating agreement. It should define procedures for different scenarios. For example, if you’re buying out a partner and need to transfer their ownership, there should be a buy-sell provision in the operating agreement. 

Whatever the scenario, you should understand the procedures defined. If you don’t have an operating agreement, you should probably seek an attorney’s help to create a written agreement for the ownership transfer. 

2. Follow Buy-Sell Procedures defined in the Operating Agreement 

Your next move is to follow the outlined procedures. Be sure to follow them to the letter, as the operating agreement, assuming it has been appropriately drafted, is legally binding. You should document all the steps you take to make the transfer. 

It’s a good idea to have an attorney involved in the process, even if the operating agreement clearly defines the procedures. This should prevent any disputes over the language of the operating agreement.

3. Update Necessary Documents 

Be sure to amend your operating agreement to reflect the new ownership percentages. You may also need to amend your articles of organization or other documents, such as vendor agreements signed by an exiting member. 

4. Notify Your Secretary of State and LLC Members/Managers

All parties, including the secretary of state and other members and managers, should be notified in writing of the change. Every state has its own regulations and procedures for amending LLC ownership. Your attorney can advise you on the procedures and you could also contact your Secretary of State for relevant information. 

How to Transfer Complete Ownership 

1. Review the Operating Agreement/Articles of Organization

Again, your operating agreement should be the document that defines how to transfer full ownership if you’re selling your company. Review it carefully to understand the process. If your LLC has more than one member, you’ll no doubt need to agree on the sale with a vote and then draft a resolution stating your intention to sell and transfer ownership. 

2. Negotiate With Your Buyer (what the buyer wants to buy) 

When you sell your business, you’ll negotiate a price and agree on exactly what is being sold. Is it all the business assets? Is a customer database included? It’s wise to have a business broker or attorney represent you in such negotiations.

3. Create a Buy-Sell Agreement 

Your attorney should help you draft a buy-sell agreement specifying exactly what is being sold, the price, and the time frame, and certifying all members’ approval of the sale. Be sure to have an attorney involved in drafting the agreement to make sure everybody’s interests are protected.

4. Update Necessary Documents 

All your existing LLC documents should of course reflect the transfer of ownership, including the operating agreement. Usually, the updating process will be specified in the buy-sell agreement, as well as which documents need to be updated. These may include the lease of your business premises, vendor agreements, and contracts. 

5. Notify the Secretary of State

Your attorney can advise you on the process to notify the Secretary of State of the transfer of ownership. In some states, this will involve an amendment to the articles of organization, but in other states, the LLC may have to be dissolved and a new one formed by the new owner. 

6. Notify Other Parties 

Your next step is to notify all relevant parties, including the IRS, your state taxing authority, your bank, your registered agent, agencies that have issued you business licenses and permits, and any other parties with which you had business dealings. Notifications should be made in writing. 

How to Change Ownership Percentages of an LLC

Keep in mind that altering the ownership percentages of your LLC is, in essence, the same as transferring partial ownership. You’ll follow much the same steps, depending on the scenario, including notifying the secretary of state and amending the relevant documents. 

In Closing

When transferring LLC ownership, the best approach is to let your operating agreement be your guide. If it’s been drafted well, it should walk you through the process and protect the rights of all members, as well as the business. 

At the same time, it’s best to have an attorney involved in the ownership transfer to make sure it’s all above board and your LLC stays on course for success.