5 Easy Steps to Change Ownership of LLC

There are a lot of reasons you might need to change ownership of an LLC.

The company could be sold…

One of the members of an LLC could die…

A partner might want to leave the LLC, and a new one needs to take their place…

No matter what the reason your LLC needs to change ownership, how it’s handled needs to be spelled out in the Operating Agreement.

After all, the operating agreement is where the LLC lists out how it will handle changing ownership.

Do you need an operating agreement that will let you change ownership of your LLC with ease? Email me now at sam@mollaeilaw.com

 

Step #1: Check Your State’s Rules

All states have different regulations about how you can change the ownership of an LLC.

There are a lot of states where you can only change LLC ownership so long as all owners of the LLC consent. This does make sense in theory but it could cost you if one member decides to be stubborn for personal reasons and block an otherwise smart ownership transfer.

If you live in one of these states and don’t want to be bound by this it’s important to include language that lets you change ownership without everyone’s permission in your operating agreement.

As long as you clearly spell out how to handle selling your LLC in your operating agreement, you won’t have to worry about being caught off guard by restrictive state regulation.

 

Step #2: Include a Buyout Agreement in your Operating Agreement

Be sure that you have language regarding how a buyout agreement will work in your operating agreement.

There are a few things that your buyout agreement will have to include such as the parties, their contact information, the ownership value and each membership unit of that ownership.

You should also include in the buyout agreement whether the member is selling of their own volition or being bought out.

This is basically how a buyout agreement works, but there are a few more things that you should consider including in your buyout agreement.

 

What Should be in Your Buyout Agreement?

Your buyout agreement should have language about what scenarios might cause the change of LLC ownership and what to do about them.

A few common times LLC ownership might change include owners retiring, new partners, divorce settlements, judgments, or even the death of a member.

If your operating agreement has language on how to handle all of these different scenarios, you’ll be prepared for any time you might need to change the ownership of your LLC.

However, it can be tough to figure out all the different ways to handle selling scenarios on your own.

I’ve helped hundreds of business owners like you resolve these questions about how to use their LLC.

Email me at sam@mollaeilaw.com now so I can start drafting your operating agreement and make sure that you’re covered no matter what happens with your LLC.

 

Step #3: Have all LLC members Agree on a Valuation Method

For a proper buyout agreement in your operating agreement, be sure to include an agreed-upon method of valuation.

A valuation method is simply how to decide what a business is actually worth.

If the members of a company cannot decide how to decide what a share of ownership is actually worth, it’s going to cause a lot of problems when it comes time to sell.

After all, if the person selling believes the stock is worth much more than the person buying because they are using different methods of valuation, sales may stall or even halt altogether.

It doesn’t matter which valuation method your business chooses as long as you agree on a method and spell it out in your operating agreement.

 

Step #4: Decide What Restrictions are Appropriate

You should include whether there are any restrictions on changing ownership, including how hard it would be for possible ownership buyers to propose offers and sellers to respond to them.

One reason to decide how easy it would be to accept or reject new owners is a vision of where the company is going.

If you are building a company you want to last for twenty years, you might want to make it more difficult for an owner to suddenly decide to sell.

On the other hand, if you want to build and sell a company for a fast profit you should make it as easy as possible to buy and sell ownership of that LLC.

Of course, these should be clearly spelled out in your LLC operating agreement and you should also have language on how to change any restrictions as the company life goes on.

If you need help writing your LLC operating agreement, email me now at sam@mollaeilaw.com.

 

Step #5: Update Your Certificate Of Organization (if necessary)

You should update your certificate of an organization as soon as a buyout agreement is complete.

The member who sold their own needs to turn in their certificates of membership and a new one with the interest valuation needs to be issued to the owner.

In the event there is no new owner then the LLC can either hold on to the ownership units to issue later or the interest can be divided up among the owners still in the LLC.

 

Conclusion

If there is no buyout agreement or provision to buy and sell in your LLC’s operating agreement you must create one as soon as possible.

If you don’t take care of this ahead of time, you could end up losing your entire LLC because one person decides to sell.

You could also lose everything when an inactive member files for bankruptcy and then costs the LLC all of its assets.

Your LLC operating agreement is an incredibly important legal document, and you need a competent business lawyer who knows how to draft one that will protect you if you need to change the ownership of your LLC.

Email me at sam@mollaeilaw.com so I can draft the operating agreement and buyout agreement that is perfect for your LLC.