It may appear to be a difficult process to sell an LLC, but it doesn't have to be.
You'll almost certainly want to locate someone who wants your company's assets and is prepared to pay the price for them if you don't want to sell your firm for a few pennies on the dollar (that would be foolish).
After a sale, you must file Articles of Merger or Assumption of Liability to transfer your company's control.
The state law that applies to your business is determined by the state you founded your LLC.
However, there are two categories of ownership transfer in LLCs:
1) Partial Interest Transfer Ownership
When you sell a part of your LLC, you transfer partial ownership. For instance, if you own a 50 percent share in an LLC, anyone who buys 25 percent is taking up a part interest.
The person buying the partial interest will become the new owner of the percentage they bought.
2) Complete Transfer Ownership
When you sell all of your company, you transfer complete ownership. For example, if you own a 50 percent share in the LLC, whoever buys all of it is taking up 100 percent ownership.
How To Transfer Partial Ownership?
One of the best methods for selling your LLC is to list it with an investment firm that offers brokerage services.
You can then put some advertisements that you intend to sell (with pictures if you like) on websites like Craigslist, eBay Classifieds, and others but first you must:
Revisit Your Operating Agreement
The operating agreement and articles of organization in your company should tell you what laws in your state govern the sale of membership interests (shares in a corporation) and how this kind of transaction must occur.
State-specific LLC operating agreement templates can be found online.
These templates contain the necessary information for a successful transfer of ownership. Suppose you do not have an LLC Operating Agreement.
In that case, it is highly recommended that you write one with the assistance of a qualified attorney who specializes in business law before attempting to sell your interest in any company.
Follow Your Buy-Sell Agreement
When you sell a membership interest in an LLC, most state legislation requires you to go through a certain buy-sell procedure.
You may learn more about this process by consulting your operating agreement and organization documents. When selling an LLC, you must notify all other owners of the transaction.
Update Papers and Notify Parties
You must provide the LLC's records with evidence of the sale. You can do that with a written agreement and an amendment to the articles of organization and amendments to your operating agreement.
Provide each member and manager affected by the transaction with a copy of what you file with your state's LLC division.
At this point, we may infer that you have already completed a buy-sell agreement and LLC operating and organizational amendments.
You'll now need to submit those with your state's corporation department. In most situations, the division will want copies of the company's initial articles of organization and operation agreement and any filings submitted to them.
The changes that need to be made in your papers are:
- Amendment to the articles of organization.
- Amending your operating agreement.
- Amendments to the Articles of Organization by removing the previous owner’s name and replacing it with the new one.
- Providing notice that the ownership has been altered to the state business registration.
- Finally, all members/managers sign and agree on this change.
How To Transfer Complete Ownership?
If your LLC is a corporation, the process of selling shares and transferring ownership will be different than for an LLC.
Your business lawyer can assist you to transfer the ownership and remove the previous owner(s) name from the articles of incorporation and replace it with the new owner's name, but first, you must:
Revisit Your LLC's Operating Agreement
Your operating agreement or articles of organization may have requirements on how to change your business structure.
For example, it could require the vote of all members. If you need to increase membership interests, consider reading how to do this.
Understand What Your Buyer Wants:
You should determine what the buyer wants from you. Some buyers may want a majority share in your business or think of going public. If you are not comfortable with their intentions, do not sell to them.
Create a Buy-Sell Agreement
The buy-sell agreement should be your first step in the actual sale process, as it will help you determine how much the membership interest is worth and who gets what after purchase.
If you already have a buy-sell agreement and it doesn't mention selling LLC interests, review it carefully and consult with your lawyer about any changes that need to be made.
To protect both parties involved:
- Provide the LLC's records and documents with evidence of the sale (written agreements and amendments to articles of organization).
- Inform all members and managers of the changes that have been made.
- Submit the sale agreement to your state business registration division.
- DO NOT transfer LLC interests unless you have completed a buy-sell agreement that includes how, when, and who can sell their membership interest.
- If you are considering selling an interest in your LLC (including transferring your membership interest), make sure to:
- Review and amend any relevant documents, such as organization and operating agreement articles.
- Give adequate notice to all LLC members and managers (the company must give 30 days' written notice before the next management meeting).
- Submit a copy of the sale agreement to your state business registration division
Notify and Document The Transfer With The State Registration Agency
If you are changing the ownership in your Limited Liability Company, you must document this change with the state.
Submit "Notice of Change in Ownership" to your state business registration division that includes:
- Name of the LLC.
- The date on which they will take effect.
- Names and addresses of all new owners (buyers).
- New LLC name (if applicable).
The percentage of ownership interest acquired by each new owner is listed for corporations.
If you open an LLC in California, the state will also require you to submit an "Application for Change in Ownership" form.
You can find this form on the California Secretary of State website under Corporations Forms, or you can consult your lawyer.
Notifying Others of the Transfer
Besides the state and the LLC members, it is important to notify the IRS and your banks of the transfer.
This notification will affect the person responsible for paying taxes, so it is important to send them a change of ownership letter at least 15 days before January 1st.
With the IRS, the new owner may need to obtain a new EIN or EFIN. You can use an EIN or EFIN application to replace a lost EIN, change the LLC's name, add owners, and more.
The IRS must also be aware of the new Responsible Party for the LLC if that person has changed.
In conclusion, make sure you know the policies, procedures, and steps needed for transferring LLC ownership.
The transfer of ownership in an LLC can be a costly undertaking, especially if you are unaware of the requirements under your operating agreement.
Before completing any sale, review your operating agreement and consult with your lawyer to ensure that you are not breaching any agreements or incurring unnecessary costs.
What Are Some Reasons for Transferring Ownership of an LLC?
There are several reasons you may need to sell your interest in your LLC, including:
- A change in personal or financial circumstances (e.g., divorce, death, retirement).
- A desire to sell your interest in the LLC.
- A desire to increase or decrease the number of owners.
What Are Some Common Restrictions on Selling Interests in an LLC?
Many operating agreements prohibit you from transferring your membership interest without the consent of other members.
If the operating agreement allows the transfer, it will likely require the selling member to give all other members notice of the sale.
What if a Member Wants to Leave the LLC?
If a member wishes to withdraw from an LLC, they should follow the procedures outlined in their operating agreement.
Make sure to notify other members and managers of this withdrawal, as well as send written notification to your state business registration division.
Do I Need Written Agreements for Every Transfer of Ownership?
Operating agreements should have a "buy/sell" clause that outlines the procedures for transferring ownership.
This clause will require all LLC members to sign off on changes in ownership, or you can take other steps to prevent an unwanted transfer.
LLC's operating agreement may also include other terms, such as the sale price of membership interest sales.
Transferring Ownership of an LLC: Conclusion
When transferring ownership of an LLC, it is important to be aware of the policies and procedures of your state as well as the IRS.
Make sure to notify all necessary parties of the transfer and consult with your lawyer to avoid any unnecessary costs or violations of your operating agreement.