The time has come to sell, leave, or change ownership of your Limited Liability Company (LLC). Fortunately, transferring control of your business to someone else is relatively straightforward. We’ll guide you through the necessary steps to leave your LLC in safe hands.
Please note: this article only covers transferring ownership of a business that’s been formed as an LLC. Transferring ownership of sole-proprietorships, nonprofits, partnerships, and corporations does vary, so we recommend seeking out specialist legal advice.
You normally form your LLC by filing “Articles of Organization” with the secretary of state or another state agency responsible for managing the formation of businesses. If you want to transfer ownership, you’ll need to let the state agency know.
There are two main ways to transfer ownership of your LLC:
- Transferring partial interest in an LLC: This applies if you are not selling the entire business, and you do not have 100 percent ownership.
- Selling your LLC: This applies if you are transferring ownership of your entire business to someone else.
How to Transfer Partial Ownership of Your LLC
Review your Operating Agreement and Articles of Organization
Your LLC should have an “Operating Agreement” which defines how your business will run. The operating agreement acts as a contract between the members of an LLC so that everyone agrees on how various matters (including ownership) should be dealt with.
Your operating agreement may include provisions on buying and selling ownership within the LLC. If it does, your OA will guide your next steps. Your original Articles of Organization may also contain a buy-sell provision, so you should review those articles to make sure everything is aligned.
If you do not have buy-sell provisions in your operating agreement or Articles of Organization, review your state’s business registration agency on how to include these. We also recommend consulting an attorney on the best way to proceed. If neither document has a buy-sell provision, and you cannot add one, you may need to dissolve your LLC.
Carefully Follow the Buy-Sell Procedures in Your Operating Agreement or Articles of Organization
Ensure that you follow all the necessary buying and selling steps as laid out, and document each part of the process. This may include drafting a resolution for sale of your part of the business—this resolution will need to be signed by all involved parties.
Pay attention to:
- Getting agreement from other LLC members.
- Defining exactly what you are selling as part of your ownership stake.
- Timing the sale as you may need to give notice to other members.
Update the Necessary Documents and Notify Relevant Parties
Once you have sold your ownership in the business, you will need to make some further changes:
- Remove your name from the owners listed in the operating agreement or in your Articles of Organization.
- Issue a membership certificate to the new owner.
- Notify your state business registration agency of the changes to membership. Depending on your state, you will probably do this through:
- Filing “Articles of Amendment” with your state’s business registration agency.
- Filing a “Statement of Information: with your state’s business registration agency.
- Providing a notice of ownership change as part of your annual reporting requirements.
- These forms will need to be signed by all members with an ownership stake in the LLC.
How to Sell Your LLC and Transfer Complete Ownership
Selling your LLC in its entirety is a more complex process. Here’s an overview of what those steps entail:
1. Review your Operating Agreement and Articles of Organization
As per our advice above, consult your operating agreement and Articles of Organization to see what they say about selling your business completely.
2. Establish What Your Buyer Wants to Buy
You will need to document exactly what your buyer is purchasing of your business. Some buyers may want to purchase your entire LLC, while others may just want to buy your assets.
3. Draw Up a Buy-Sell Agreement with the New Buyer
A buy-sell agreement will set out all the key facts of the sale of your LLC including:
- Whether the overall LLC is being purchased.
- The specific assets included in the sale.
- The timescale of the sale.
- The agreement of all members with an ownership stake in the LLC.
- Any other relevant details regarding the sale of the business.
Selling an LLC does have complex tax, legal, and financial requirements and obligations. We strongly recommend consulting with a specialized business attorney to help you draw up and manage the sale and to guide you through what you need to do next.
4. Record the Sale with the State Business Registration Agency
You will need to notify your secretary of state or other business registration agency of the change of ownership. Your attorney can guide you through how to do this.
Note that in some cases, according to your state laws, you may not be able to “transfer ownership” of your business—instead, you would be required to “Dissolve” your LLC and the buyer would then create a new one. Any assets will then transfer between the LLCs as defined in the buy-sell agreement.
Notifications Regarding Transfer of Ownership in an LLC
Whether you’re transferring partial ownership or selling your overall business, you will most likely need to notify other parties.
The Internal Revenue Service
The IRS will need to know about the change of ownership. This may require the new owner to get a different Employer Identification Number (EIN). You must also inform the IRS of any change in the “Responsible Party” for the LLC. The responsible party is, “the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets.” You notify the IRS of this change by filing Form 8822-B.
Banks or Other Financial Institutions
You must inform the financial institution where your business has any accounts of the change in ownership and control of the LLC.
States Where the LLC is Registered as a Foreign LLC
LLCs must register in each state where they transact business. This may involve multiple states where you are filed as a foreign LLC. Consult the various state business registration websites to understand how to properly notify them of changes in ownership.
The LLCs registered agent is the business or person that receives formal documents, letters, and notices on behalf of the LLC. The registered agent may need to know about the change in ownership.
Any Other Parties
It’s also possible that you may need to notify parties like suppliers, partners, lenders, distributors, and others of any change in ownership, depending on the agreement you have with them.
We hope you’ve found this guide to transferring LLC ownership useful. Everyone’s business situation is different, so we always recommend consulting with a business attorney about any particle or complete changes in business ownership.