How to Transfer Ownership Interest in LLCs

A limited liability company, or LLC, differs from other types of business arrangements. An LLC, unlike a C or S corporation, is owned by members, not shareholders. There is an unlimited number of members allowed to own the LLC, and the members hold no personal liability for the LLC. When forming an LLC, you should have an operating agreement in place that indicates how the business should be managed, file articles of organization with the secretary of state and you should have a buyout clause to deal with the transfer of membership interests.

Follow the guidelines set forth by the "Buyout Agreement." This type of agreement dictates how the interest of a departing member shall be sold and who can purchase that member's interest. It will also contain exhibits that indicate the LLC's current financial holdings, assets and the amount of compensation due to the exiting member. (See Resources for an example of a Buyout Agreement.) If you don't currently have one, you can create one to deal with the member's change in ownership. All members must agree.

Sign the Buyout Agreement. All members, including the exiting member, must sign the Buyout Agreement. The exiting member is considered the "seller" and must sign in the seller field. If any money is due to the exiting member, a check or cashier's check should be issued to him.

Change the LLC's "Operating Agreement." The Operating Agreement is privately held by members of the corporation and is separate from the Articles of Organization filed with the Secretary of State. The Operating Agreement can have about 10 sections. One section, or article, should indicate who the members are and how much interest each has in the LLC. Another section should explain how members shall be removed. (See Resources for an example of an Operating Agreement.) Remove the old member's name from the Operating Agreement, enter in the name of any new member and redistribute the interest of the ex-member.

Sign the Operating Agreement. All members, including any new member, should sign the new Operating Agreement. You will not need to file this change with the Secretary of State. The state will deal directly with the registered agent and is generally not concerned with the LLC's individual members.