Assignment of Interest in an LLC

A limited liability company is a business organization type that protects the personal assets of the owners, referred to as members, from creditors of the company. A member in an LLC typically has membership interest in the LLC that entitles her to profits while giving her responsibilities to and for the company. A member may assign her interest in the LLC to another person or entity for various reasons, including her retirement.

Function

The purpose of assigning interest in an LLC is for the member to give his interest as a member to another party. He may give all of his interest in the LLC to another party, a percentage of his interest or his interest in certain aspects of the LLC, such as the right to receive distributions from the company.

Features

An assignment agreement is used to transfer LLC interest. The document lists the giver of the interest and the interest type, the receiver's name, the LLC's name and the percentage of interest the giver is assigning the receiver. The assignment references the rules and governing documents of the LLC, such as an operating agreement, that the receiver must follow once he accepts the interest. The amount of money or assets the receiver must contribute to the LLC is included if necessary, as well as the effective date of the assignment and any other terms the other members of the LLC require. The giver may include the assignment itself in the agreement or use a separate document that references the agreement to officially transfer the interest.

Effects

The receiver inherits all the member's responsibilities and liabilities to the company once a full assignment is complete, as well as his rights and entitlements to profits. Some assignments transfer the right to money and profits from the LLC only, with the transferring member retaining the right to take part in the company's internal affairs.

Considerations

States laws vary on the assignment of a member's interest in an LLC. A member may assign his interest to another person without the approval of the other members, but the receiver may not vote or participate in any business decisions in some states.

The LLC's operating agreement, a legally binding document the members draft to govern the company's affairs, can contain a provision forbidding or restricting the assignment of membership interest. The LLC can name specific scenarios that allow for an assignment of interest and bar assignments in absence of those circumstances.

References

About the Author

Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.