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Assignment of Membership Interest: The Ultimate Guide for Your LLC

LegalGPS : November 30, 2023 at 8:16 AM

As a business owner, there may come a time when you need to transfer ownership of your company or acquire additional members. In these situations, an assignment of membership interest is a critical step in the process. This blog post aims to provide you with a comprehensive guide on everything you need to know about the assignment of membership interest and how to navigate the procedure efficiently. So, let's dive into the world of LLC membership interest transfers and learn how to secure your business!

What is an Assignment of Membership Interest?

An assignment of membership interest is a document that allows a member of an LLC to transfer their ownership share in the company to another person or entity. This can be done in the form of a sale or gift, which are two different scenarios that generally require different types of paperwork. An assignment is typically signed by the parties involved and delivered to the Secretary of State's office for filing. However, this process can vary depending on where you live and whether your LLC has members other than yourself as well as additional documents required by state law.

Necessary Approvals and Consent

Before initiating the assignment process, it's essential to review the operating agreement of your LLC, as it may contain specific guidelines on how to assign membership interests.

Often, these agreements require the express consent of the other LLC members before any assignment can take place. To avoid any potential disputes down the line, always seek the required approvals before moving forward with the assignment process.

Impact on Ownership, Voting, and Profit Rights

It's essential to understand that assigning membership interests can affect various aspects of the LLC, including ownership, voting rights, and profit distribution. A complete assignment transfers all ownership rights and obligations to the new member, effectively removing the original member from the LLC. For example, if a member assigns his or her interest, the new member inherits all ownership rights and obligations associated with that interest. This includes any contractual obligations that may be attached to the membership interest (e.g., a mortgage). If there is no assignment of interests clause in your operating agreement, then you will need to get approval from all other members for an assignment to take place.

On the other hand, a partial assignment permits the original member to retain some ownership rights while transferring a portion of their interest to another party. To avoid unintended consequences, it's crucial to clearly define the rights and responsibilities of each party during the assignment process.

Types of Membership Interest Transfers

Membership interest transfers can be either complete or partial, depending on the desired outcome. Understanding the differences between these two types of transfers is crucial in making informed decisions about your LLC.

Complete Assignment

A complete assignment occurs when a member transfers their entire interest in the LLC to another party, effectively relinquishing all ownership rights and obligations. This type of transfer is often used when a member exits the business or when a new individual or entity acquires the LLC.

For example, a member may sell their interest to another party that is interested in purchasing their share of the business. Complete assignment is also used when an individual or entity wants to purchase all of the interests in an LLC. In this case, the seller must receive unanimous approval from the other members before they can transfer their entire interest.

Partial Assignment

Unlike a complete assignment, a partial assignment involves transferring only a portion of a member's interest to another party. This type of assignment enables the member to retain some ownership in the business, sharing rights, and responsibilities proportionately with the new assignee. Partial assignments are often used when adding new members to an LLC or when existing members need to redistribute their interests.

A common real-world example is when a member receives an offer from another company to purchase their interest in the LLC. They might want to keep some ownership so that they can continue to receive profits from the business, but they also may want out of some of the responsibilities. By transferring only a partial interest in their membership share, both parties can benefit: The seller receives a lump sum payment for their share of the LLC and is no longer liable for certain financial obligations or other tasks.

How to Draft an Assignment of Membership Interest Agreement

A well-drafted assignment of membership interest agreement can help ensure a smooth and legally compliant transfer process. Here is a breakdown of the key elements to include in your agreement, followed by a step-by-step guide on drafting the document.

Key elements to include:

The names of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name of your LLC and the state where it was formed

A description of the membership interest being transferred (percentage, rights, and obligations)

Any required approvals or consents from other LLC members

Effective date of the assignment

Signatures of all parties involved, including any relevant witnesses or notary public

Step 1: Gather Relevant Information

Before you begin drafting the agreement, gather all pertinent data about the parties involved and the membership interest being transferred. You'll need information such as:

The names and contact information of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name and formation details of your LLC, including the state where it was registered

The percentage and value of the membership interest being transferred

Any specific rights and obligations associated with the membership interest

Step 2: Review the LLC's Operating Agreement

Examine your LLC's operating agreement to ensure you adhere to any predetermined guidelines on assigning membership interests. The operating agreement may outline specific procedures, required approvals, or additional documentation necessary to complete the assignment process.

If your LLC doesn't have an operating agreement or if it's silent on this matter, follow your state's default LLC rules and regulations.

Step 3: Obtain Necessary Approvals and Consents

Before drafting the assignment agreement, obtain any necessary approvals or consents from other LLC members as required by the operating agreement or state law. You may need to hold a members' meeting to discuss the proposed assignment and document members' consent in the form of a written resolution.

Step 4: Outline the Membership Interest Being Transferred

Detail the membership interest being transferred in the Assignment of Membership Interest Agreement. Specify whether the transfer is complete or partial, and include:

The percentage of ownership interest being assigned

Allocated profits and losses, if applicable

Voting rights associated with the transferred interest

The assignor's rights and obligations that are being transferred and retained

Any capital contribution requirements

Step 5: Determine the Effective Date of the Assignment

Set an effective date for the assignment, which is when the rights and obligations associated with the membership interest will transfer from the assignor to the assignee.

This date is crucial for legal and tax purposes and helps both parties plan for the transition. If you don’t specify an effective date in the assignment agreement, your state's law may determine when the transfer takes effect.

Step 6: Specify Conditions and Representations

In the agreement, outline any conditions that must be met before the assignment becomes effective. These could include obtaining certain regulatory approvals, fulfilling specific obligations, or making required capital contributions.

Additionally, you may include representations from the assignor attesting that they have the legal authority to execute the assignment. Doing this is important because it can prevent a third party from challenging the assignment on grounds of lack of authority. If the assignor is an LLC or corporation, be sure to specify that it must be in good standing with all necessary state and federal regulatory agencies.

Step 7: Address Tax and Liability Issues

Clearly state that the assignee will assume responsibility for any taxes, liabilities, and obligations attributable to the membership interest being transferred from the effective date of the assignment. You may also include indemnification provisions that protect each party from any potential claims arising from the other party's actions.

For example, you can include a provision that provides the assignor with protection against any claims arising from the transfer of membership interests. This is especially important if your LLC has been sued by a member, visitor, or third party while it was operating under its current management structure.

Step 8: Draft the Entire Agreement and Governing Law Clauses

In the closing sections of the assignment agreement, include clauses stating that the agreement represents the entire understanding between the parties concerning the assignment and supersedes any previous agreements or negotiations. Specify that any modifications to the agreement must be made in writing and signed by both parties. Finally, identify the governing law that will apply to the agreement, which is generally the state law where your LLC is registered.

This would look like this:

Step 9: Review and Sign the Assignment Agreement

Once you've drafted the Assignment of Membership Interest Agreement, ensure that all parties carefully review the document to verify its accuracy and completeness. Request a legal review by an attorney, if necessary. Gather the assignor, assignee, and any necessary witnesses or notary public to sign the agreement, making it legally binding.

Sometimes the assignor and assignee will sign the document at different times. If this is the case, then you should specify when each party must sign in your Assignment Agreement.

Importance of a Professionally-drafted Contract Template

To ensure a smooth and error-free assignment process, it's highly recommended to use a professionally-drafted contract template. While DIY options might seem tempting, utilizing an expertly-crafted template provides several distinct advantages.

Advantages of using a professionally-created template:

Accuracy and Compliance: Professionally-drafted templates are designed with state-specific regulations in mind, ensuring that your agreement complies with all necessary legal requirements.

Time and Cost Savings: With a pre-written template, you save valuable time and resources that can be better spent growing your business.

Reduced Legal Risk: Legal templates created by experienced professionals significantly reduce the likelihood of errors and omissions that could lead to disputes or litigations down the road.

How our contract templates stand out from the rest:

We understand the unique needs of entrepreneurs and business owners. Our contract templates are designed to provide a straightforward, user-friendly experience that empowers you with the knowledge and tools you need to navigate complex legal processes with ease. By choosing our Assignment of Membership Interest Agreement template, you can rest assured that your business is in safe hands. Click here to get started!

Frequently Asked Questions (FAQs) about Assignment of Membership Interest

As you embark on the journey of assigning membership interest in your LLC, here are some frequently asked questions to help address any concerns you may have:

Is an assignment of membership interest the same as a sale of an LLC? No. While both processes involve transferring interests or assets, a sale of an LLC typically entails the sale of the entire business, whereas an assignment of membership interest relates to the transfer of some or all membership interests between parties.

Do I need an attorney to help draft my assignment of membership interest agreement? While not mandatory, seeking legal advice ensures that your agreement complies with all relevant regulations, minimizing potential legal risks. If you prefer a more cost-effective solution, consider using a professionally-drafted contract template like the ones we offer at [Your Company Name].

Can I assign my membership interest without the approval of other LLC members? This depends on your LLC's operating agreement and state laws. It's essential to review these regulations and obtain any necessary approvals or consents before proceeding with the assignment process.

Do you need a lawyer for this?

The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes ( especially if you have multiple owners ). But often for single-owner businesses, you don't need a lawyer to start your business .

Many business owners instead use tools like Legal GPS for Business , which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.

We hope this guide provides valuable insight into the process of assigning membership interest in your LLC. By understanding the legal requirements, implications, and steps involved, you can navigate this essential task with confidence. Ready to secure your business with a professionally-drafted contract template? Visit our website to purchase the reliable and user-friendly Assignment of Membership Interest Agreement template that enables your business success.

Assignment Of Membership Interest

Jump to section, what is an assignment of membership interest.

An assignment of membership interest is a legal document that allows members of a Limited Liability Company (or LLC) to reassign their interest in the company to a different party. LLC laws are different from state to state, so what's required in an assignment of membership agreement changes.

Typically seen when a member wishes to exit a business, the assignment of membership interest agreement is used when transferring membership interest to another person. It is possible to transfer membership of an LLC to something like a revocable trust but requires those terms and conditions to be set in the assignment agreement.

Assignment Of Membership Interest Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.1.1.2 3 dex10112.htm ASSIGNMENT OF MEMBERSHIP INTEREST , Viewed October 13, 2021, View Source on SEC .

Who Helps With Assignments Of Membership Interest?

Lawyers with backgrounds working on assignments of membership interest work with clients to help. Do you need help with an assignment of membership interest?

Post a project in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate assignments of membership interest. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

Meet some of our Assignment Of Membership Interest Lawyers

Christina M.

I am a regulatory transactional attorney with 16 years of in-house experience, largely in the gaming/gambling industry. I have negotiated various types and sizes of contracts from janitorial services for a small commercial building to multi-million dollar technology transactions. I also have a strong regulatory background that strengthens my ability to navigate contracts that are subject to stringent regulations.

Bobby E. Hill, Jr. is a native of Tuscaloosa, Alabama and holds undergraduate degrees in music and business administration from Xavier University of Louisiana. He received his Juris Doctor from the University of Miami School of Law where he was a staff and articles editor for the school’s Race & Social Justice Law Review and a student attorney in the institution’s Immigration Clinic. In addition to freelancing, Bobby is currently a litigation associate at Johnson & Freeman, LLC, a boutique litigation firm in Atlanta, Georgia, where he practices in the firm's Condemnation, Probate, Real Estate Litigation, Real Estate Transactions, E-Discovery and Business and General Civil Litigation Practice areas. In this role, Bobby has acquired appreciable experience in drafting memoranda of law for partners and senior counsel, and all litigation related pleadings including pleadings related to dispositive motions, discovery, appeals, and other post-judgment relief.

Attorney with over 10+ years' experience and have closed over $1 Billion in real estate, telecommunications, & business transactions

I am an attorney with over 13 years experience licensed in both Illinois and Indiana. I spent the early part of my career as a civil litigation attorney. Eventually, I moved into an in-house role, specifically as general counsel, to help companies avoid the pains of litigation. In doing so, I gained significant experience in executive leadership, corporate governance, risk management and cybersecurity/privacy. I bring this wealth of experience to my client engagements to not only resolve the immediate issue, but help implement lasting improvements in practices to avoid similar problems going forward.

I am a Spanish-fluent corporate and commercial real estate attorney and broker licensed in New York and New Jersey. My pragmatic approach towards conflict resolution allows me to provide valuable advice to clients on avoiding issues of liability through effective risk management and strategic allocation of resources. I counsel businesses, developers, owners and investors on residential/commercial real estate and corporate transactions involving the acquisition, finance, development, leasing and disposition of all asset classes. In addition, I advise on joint venture partnerships and the negotiation, structure and drafting of operating agreements. Throughout my successful practice, I have held in-house counsel positions at large corporations, including JPMorgan Chase and Duane Reade, and had the privilege of working for the Department of Justice where I honed expertise in all aspects of mortgage-backed securities.

Christine T.

Christine E. Taylor focuses her practice in the areas of Hospitality Law, Business Law, Labor and Employment Law, Real Estate Law, Administrative Law, Estate Law and Litigation. Ms. Taylor grew up within the campground industry, working at parks in both the Yogi Bear’s Jellystone Park Franchise and the Kampgrounds of America Franchise. Armed with two decades of experience, Ms. Taylor is quick to point out the legal issues that apply to outdoor hospitality business owners. She has provided a wide variety of services to campgrounds, RV Parks, and glamping venues, including seasonal licenses, waivers, employment contracts, real estate services and even litigation services as needed.

I help clients with: buying and selling commercial properties including multi-family and office projects, subdivisions, retail shopping centers; and negotiating leases for retail and office landlords, retail tenants and office tenants. Over 23 years I've honed my skills by running deals at an Amlaw-100 firm, an elite real estate boutique in Aspen, Colorado and a few highly regarded national firms based in Denver, Colorado, before starting my own solo practice in 2016. Since 2016 I've been helping my clients with real estate and business deals. I'm a commercial real estate and business expert with a passion for helping clients forge successful ventures in an efficient and understandable manner.

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LLC Membership Interest Assignment

Choose the state where the LLC is formed (and primarily does business). This will be the state where all of the initial business documents for the LLC, like the Articles of Organization or Certificate of Formation, have been filed.

State of Alabama

This assignment ("Assignment") is made by and between the following parties: ________ , hereinafter known as "Assignor," having an address at the following:

and ________ , hereinafter known as "Assignee," having an address at the following:

Assignor, an individual, hereby assigns, transfers, and conveys all of Assignor's right, title and interest in and to all of Assignor's membership interests in ________ , a Alabama Limited Liability Company, hereinafter known as the "LLC," to Assignee, an individual. Such membership interest amounts to the following percentage ownership: ________ % (________ percent) membership interest, along with voting rights in the LLC, and this Assignment shall leave Assignor with no interest in the LLC. Assignee hereby accepts this Assignment.

This assignment is effective as of ________ and is made for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged.

Assignor hereby represents and warrants and that Assignor has good title to the membership interest conveyed herein and that Assignor has no limitations on making such assignment, such as any security interest, lien, or encumbrance.

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This assignment shall be valid and binding upon all of Assignor and Assignee's successors, transferees, heirs, and assigns.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed on the following date: ________ .

Assignor: ________

Signature: __________________________

Assignee: ________

Consent To Assignment Of Membership Interest

Each and all of the members of ________ , a Alabama Limited Liability Company, hereby consent to the assignment, transfer and conveyance of membership interest in ________ made by the attached LLC Membership Interest Assignment. Each and all of the members further agree that Assignee is now a member of ________ and Assignor retains no further interest in ________ .

Assignee shall have all the rights and powers of a member henceforth.

This consent is made on the following date: ____________________.

Name of Member: __________________________

Signature:__________________________

HOW TO CUSTOMIZE THE TEMPLATE

Answer the question, then click on "Next."

The document is written according to your responses - clauses are added or removed, paragraphs are customised, words are changed, etc.

At the end, you will immediately receive the document in Word and PDF formats. You can then open the Word document to modify it and reuse it however you wish.

LLC Membership Interest Assignment Free

When one party wants to transfer the ownership of an interest in an LLC, they can use this LLC Membership Interest Assignment. The document can also be used when one party wishes a membership interest in an LLC transferred to them.

LLC Membership Interest Assignment preview

Template Overview

When one member of an LLC, also known as a Limited Liability Company, wants to transfer their interests to another party, this LLC Membership Interest Assignment can be used. Such contracts are particularly prevalent when a member of an LLC leaves the company and wants to give up his interest.

Usually, LLC Membership Interest Assignments are created with an operating LLC. In most states, a limited liability company has to have Articles of Organization (also known as Certificates of Formation).

An LLC can be created for any reason. If an LLC owner chooses to waive their interest in the LLC, this LLC Membership Interest Assignment can be used.

This document is quite straightforward that consists of information needed to transfer an interest in an LLC. Both the Assignor (a person transferring the interest) and the Assignee (a person receiving the interest) can fill out the information about themselves.

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

How to use this template

When one party wants to transfer the ownership of an interest in an LLC, they can use this document. The document can also be used when one party wishes a membership interest in an LLC transferred to them (with approval from the owner). Note that both parties should completely understand that the membership interest will be fully assigned.

The filing party will have to specify identifying information about parties and the details of the membership interest, including percentage and whether or not it comes with voting rights.

A completed document requires signatures from both parties.

Applicable law

Individual state laws govern LLC Membership Interest Assignments.

Ready to build your document from this template?

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Assignment of LLC Interest

An Assignment of LLC Interest is a document through which an LLC member can transfer their ownership rights.

About document

What Is an Assignment of LLC Interest?

You can use an Assignment of LLC Interest in situations where an LLC member wishes to secure a loan, settle a debt, or leave their LLC.

In such cases, this document will serve to transfer the member's interest – which can be done wholly or partially – according to state laws and the governing documents of the LLC in question.

Other Names for Assignment of LLC Interest

Since the document's content takes precedence over the title, an Assignment of LLC Interest doesn't necessarily have to bear that name. It's also called:

Assignment Agreement
Transfer Agreement
Interest Transfer Agreement

Who Needs an Assignment of LLC Interest?

LLC members may decide to assign their interest for several reasons. One of the more common reasons for assignment is providing collateral for a loan.

Another reason might be if the member needs to settle a debt, in which case the assignment remains effective while the debt is present.

Finally, a member can assign interest to their legal heirs. In this case, the assignment becomes valid upon the member's death.

Why Use 360 Legal Forms for Your Assignment of LLC Interest?

Customized for you, by you.

Create your own documents by simply answering our easy-to-understand questionnaire to get exactly what you need out of your Assignment of LLC Interest.

Specific to your jurisdiction

Laws vary by location. Each document on 360 Legal Forms is customized for your state.

Fast and easy

All you need to do is fill out a simple questionnaire, print it, and sign. No printer? No worries. You and other parties can even sign online.

How to Create an Assignment of LLC Interest With 360 Legal Forms

An Assignment of LLC Interest should clearly outline the rights and limitations as they apply both to the assignor, i.e., the LLC member transferring interest, and the assignee, i.e., the party receiving interest. For this reason, the document should be detailed and carefully crafted. State laws can potentially restrict assignments, and documents contrary to those laws can be subject to invalidation.

Let 360 Legal Forms help with our extensive library of attorney-vetted legal forms. The process is fast and easy. All you need to do is fill out our easy-to-understand questionnaire. Once complete, simply download your form as a PDF or Word document from your secure online account.

What Information Will I Need to Create My Assignment of LLC Interest?

To create your document, please provide:

Assignor Information: Details on the LLC member transferring interest
Assignee Information: Details on the entity receiving interest
Assignment Type: Description of whether the assignment is partial or full
Type of Partial Assignment (If Applicable): Determining whether the assignor will transfer a portion of ownership or specific rights and responsibilities
Signatures : All involved parties need to sign the document to make it legally binding

Assignment of LLC Interest Terms

Assignor : The LLC member assigning their rights, responsibilities, and interest
Assignee: The individual or other entity receiving the rights, obligations, and interest from the Assignor
Authority : A confirmation that the agreement is following regulations affecting all parties (Assignor and Assignee)
Severability : If you can't execute any individual part of the agreement, the rest of the agreement will remain valid

Assignment of LLC Interest Signing Requirements

An Assignment of LLC Interest is a legally binding document, which means all parties should ensure they understand and agree to all terms within it before signing.

Once the Assignor and Assignee confirm that all information in the document is correct, both parties will need to sign the document to make it valid.

What to Do With Your Assignment of LLC Interest?

An Assignment of LLC Interest defines the scope of interest an LLC member will transfer to another party for other members of the LLC.

After signing the document, you will execute the interest transfer. Both parties should keep their copies of this document for the record.

Frequently Asked Questions

LLC members often have two roles within the LLC: as interest owners and managers. When a member decides to assign interest to another party, the transfer won't affect that member's management role.

Should an LLC member wish to leave the LLC management, they'll need to resign from that role in an action separate from the interest transfer. At that point, they’ll determine their replacement in the management following the LLC operating agreement and the state laws.

An LLC member can transfer their interest fully or partially. Full transfer means that the Assignee receives interest identical to that previously held by the Assignor.

In the case of a partial transfer, an LLC member will assign either a portion of their interest or only certain rights to the Assignee.

In most states, the Assignee won't have the right to participate in the operations of the LLC in question. The Assignee is also protected from the Assignor's liabilities, but this may vary according to the state. For example, the Assignee receives the liability in Florida and California.

If the Assignee is introduced into the LLC as a member following the transfer, the Assignee's limitations and rights will be the same as the Assignor's.

Most states will not prohibit any LLC members from assigning interest. Likewise, in most states, interest transfer won't mean that the Assignor relinquishes their right to vote or continue their involvement in LLC management.

Texas is an exception since that state's law mandates that the Assignor must forfeit their LLC membership upon transfer.

Notifying all LLC members of an assignment is mandatory, and in some states, you can only enforce the document upon approval by all LLC members.

LLC members can decide whether the Assignee will become a member if the Assignor wishes to resign their position. The interest transfer doesn't guarantee that the Assignee will automatically become an LLC member.

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Tax Benefits of Guaranteed Payments in an LLC

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Management Structures in a Limited Liability Company
Can an LLC Be Passed to Heirs?

The type of business structure known as a limited liability company is similar to a partnership, with some features of a corporation. An owner in an LLC is called a member, and the ownership stake is described as the member's interest in the LLC. If a member of an LLC wants or needs to transfer some of his ownership rights, that task is accomplished with an assignment of interest.

LLC Agreement

The limited liability company agreement provides the details about how the company operates, and what the members can and cannot do with their individual ownership interests. If the LLC agreement allows a member to assign the member's interest, an assignment is accomplished using the aptly named "assignment of interest" form. The form is a legal document. The company agreement and state law where the LLC is located dictate what information should be on the form and who needs to sign the assignment.

Assignment is Not Selling

The assignment of LLC member interest is not necessarily a sale of the member's ownership in the company. The law in many states notes that assignment is a transfer of the financial benefits, such as a share of income, of a member's interest in an LLC, and not a transfer of the member's ownership rights. The assignee does not participate in the running or management of the LLC. One way that an assignment of interest can be used is as collateral for a loan. The assignment would be revoked when the loan is paid off.

Full or Partial Assignment Possible

An assignment of interest can be used to assign just a portion of a member's interest in the LLC. The assignment does not need to be for 100 percent of the financial benefits the member will receive from the company. The ability to assign a partial interest gives an LLC member flexibility to use his ownership stake as collateral for other obligations or business opportunities. As always, the overall company agreement must allow the partial assignment.

Members Vote If Assignment is a Sale

It usually takes more than just an assignment of interest for an LLC member to sell his ownership interest in a limited liability company. For example, Delaware state law requires a vote or written agreement of all members of an LLC to transfer ownership rights such as decision-making and participation in the management of a company. If a member wishes to sell his ownership in an LLC, the member must check with the other members to get unanimous agreement that someone else can take over the ownership interest.

Delaware.gov: Assignment of Limited Liability Company Interest
Entrepreneur: Assignment and Transfer of Membership Interest

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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Sale and Assignment of LLC Membership Interests

Transfers from Member to Member or to Non-Member Third Parties by David J. Willis J.D., LL.M.

Introduction

This article addresses legal points to consider when conveying a membership interest in a limited liability company from one individual to another. It does not address the initial issuance of such interests when the LLC is formed, nor sales of membership interests by an existing LLC to incoming members.

Additionally, this article addresses absolute assignments (full and final transfers) rather than collateral assignments (made only as security for a loan) which are a different topic entirely.

Assignments of this type may follow the execution of a letter of intent which provides for a due-diligence period. This article does not cover the contents of such an LOI but does address issues that should be considered by a prospective assignee in conducting due diligence. An LOI will often make reference to specific due diligence steps that a buyer will be permitted to take.

After covering definitions and applicable law, we will turn to principal points that should be considered in negotiating and drafting an assignment of LLC membership interest.

APPLICABLE LAW

Relevant statutory definitions.

Applicable law is found in the Business Organizations Code (BOC):

Bus. Orgs. Code Section 1.002. DEFINITIONS

(7) “Certificated ownership interest” means an ownership interest of a domestic entity represented by a certificate issued in bearer or registered form.

(32) “Fundamental business transaction” means a merger, interest exchange, conversion, or sale of all or substantially all of an entity’s assets.

(35)(A) “Governing authority” means a person or group of persons who are entitled to manage and direct the affairs of an entity under this code and the governing documents of the entity, except that if the governing documents of the entity or this code divide the authority to manage and direct the affairs of the entity among different persons or groups of persons according to different matters, “governing authority” means the person or group of persons entitled to manage and direct the affairs of the entity with respect to a matter under the governing documents of the entity or this code.

(41) “Interest exchange” means the acquisition of an ownership or membership interest in a domestic entity as provided by Subchapter B, Chapter 10. The term does not include a merger or conversion.

(46) “Limited liability company” means an entity governed as a limited liability company under Title 3 or 7. The term includes a professional limited liability company.

(53) “Member” means: (A) in the case of a limited liability company, a person who has become, and has not ceased to be, a member in the limited liability company as provided by its governing documents or this code. . . .

(54) “Membership interest” means a member’s interest in an entity. With respect to a limited liability company, the term includes a member’s share of profits and losses or similar items and the right to receive distributions, but does not include a member’s right to participate in management.

(64) “Ownership interest” means an owner’s interest in an entity. The term includes the owner’s share of profits and losses or similar items and the right to receive distributions. The term does not include an owner’s right to participate in management.

(69-b) “Person” means an individual or a corporation, partnership, limited liability company, business trust, trust, association, or other organization, estate, government or governmental subdivision or agency, or other legal entity, or a protected series or registered series of a domestic limited liability company or foreign entity.

(87) “Uncertificated ownership interest” means an ownership interest in a domestic entity that is not represented by an instrument and is transferred by: (A) amendment of the governing documents of the entity; or (B) registration on books maintained by or on behalf of the entity for the purpose of registering transfers of ownership interests.

A well-drafted assignment of LLC membership interest will be mindful of and consistent with these statutory terms.

Statute Authorizing LLC Membership Assignments

Foundational to the idea of a sale and assignment of LLC membership interest is the legal authority to enter into such a transaction in the first place:

Bus. Orgs. Code Sec. 101.108. ASSIGNMENT OF MEMBERSHIP INTEREST

(a) A membership interest in a limited liability company may be wholly or partly assigned.

(b) An assignment of a membership interest in a limited liability company: (1) is not an event requiring the winding up of the company; and (2) does not entitle the assignee to: (A) participate in the management and affairs of the company; (B) become a member of the company; or (C) exercise any rights of a member of the company.

Consent by other members is required. BOC Section 101.103(s) states that a “person who, after the formation of a limited liability company, acquires directly or is assigned a membership interest in the company or is admitted as a member of the company without acquiring a membership interest becomes a member of the company on approval or consent of all of the company’s members.” BOC Section 101.105 states that a “limited liability company, after the formation of the company, may: (1) issue membership interests in the company to any person with the approval of all of the members of the company. . . .”

An additional consent requirement is found in BOC Section 101.356(c) which provides that, for the most part, “a fundamental business transaction of a limited liability company, or an action that would make it impossible for a limited liability company to carry out the ordinary business of the company, must be approved by the affirmative vote of the majority of all of the company’s members.”

Accordingly, it is advisable to accompany an assignment of membership interest with a special meeting of members that approves and ratifies the change. One or more LLC resolutions may be produced as well. All affected parties (and their spouses, even if non-members) should sign off.

What category of property is an LLC membership interest?

Regardless of the type of property owner by a limited liability company, a membership interest in the LLC is personal property:

Bus. Orgs. Code Sec. 101.106. NATURE OF MEMBERSHIP INTEREST

(a) A membership interest in a limited liability company is personal property.

(a-1) A membership interest may be community property under applicable law.

(a-2) A member’s right to participate in the management and conduct of the business of the limited liability company is not community property.

(b) A member of a limited liability company or an assignee of a membership interest in a limited liability company does not have an interest in any specific property of the company.

The characterization of an LLC membership interest as personal property is important because it also signifies what it is not . For instance, it is not a real property interest even though the LLC may own real estate. It is not a negotiable instrument subject to the Uniform Commercial Code (found in Texas Business & Commerce Code Section 3.201 et seq.). Nor is a small-business LLC membership interest usually considered to be a security subject to state and federal securities laws: “An interest in a partnership or limited liability company is not a security unless it is dealt in or traded on securities exchanges or in securities markets, [and the company agreement] expressly provide[s] that it is a security . . . or it is an investment company security.” Tex. Bus. & Com. Code Sec. 8.103(c).

The foregoing applies regardless of whether the membership interest is considered certificated or uncertificated.

Statutory Qualifications for LLC Membership

Qualifications and requirements for membership in an LLC are found in the BOC:

Bus. Orgs. Code Sec. 101.102. QUALIFICATION FOR MEMBERSHIP

(a) A person may be a member of or acquire a membership interest in a limited liability company unless the person lacks capacity apart from this code.

(b) A person is not required, as a condition to becoming a member of or acquiring a membership interest in a limited liability company, to:

(1) make a contribution to the company; (2) otherwise pay cash or transfer property to the company; or (3) assume an obligation to make a contribution or otherwise pay cash or transfer property to the company.

(c) If one or more persons own a membership interest in a limited liability company, the company agreement may provide for a person to be admitted to the company as a member without acquiring a membership interest in the company.

Rights and Duties of an Assignee

BOC Sec. 101.109. RIGHTS AND DUTIES OF ASSIGNEE OF MEMBERSHIP INTEREST BEFORE MEMBERSHIP

(a) A person who is assigned a membership interest in a limited liability company is entitled to:

(1) receive any allocation of income, gain, loss, deduction, credit, or a similar item that the assignor is entitled to receive to the extent the allocation of the item is assigned; (2) receive any distribution the assignor is entitled to receive to the extent the distribution is assigned; (3) require, for any proper purpose, reasonable information or a reasonable account of the transactions of the company; and (4) make, for any proper purpose, reasonable inspections of the books and records of the company.

(b) An assignee of a membership interest in a limited liability company is entitled to become a member of the company on the approval of all of the company’s members.

(c) An assignee of a membership interest in a limited liability company is not liable as a member of the company until the assignee becomes a member of the company.

BOC Sec. 101.110. RIGHTS AND LIABILITIES OF ASSIGNEE OF MEMBERSHIP INTEREST AFTER BECOMING MEMBER

(a) An assignee of a membership interest in a limited liability company, after becoming a member of the company, is:

(1) entitled, to the extent assigned, to the same rights and powers granted or provided to a member of the company by the company agreement or this code; (2) subject to the same restrictions and liabilities placed or imposed on a member of the company by the company agreement or this code; and (3) except as provided by Subsection (b), liable for the assignor’s obligation to make contributions to the company.

(b) An assignee of a membership interest in a limited liability company, after becoming a member of the company, is not obligated for a liability of the assignor that:

(1) the assignee did not have knowledge of on the date the assignee became a member of the company; and (2) could not be ascertained from the company agreement.

It is important to note that these statutory rights and duties are subject to “restrictions and liabilities” that may be imposed by the company agreement.

PRELIMINARY CONSIDERATIONS

The company agreement.

When considering a transfer of LLC membership, it is important to first check the company agreement (operating agreement) to determine if there are buy-sell provisions or a right-of-first-refusal clause that must be worked through before the membership interest can be assigned. company agreements often require that before a sale and assignment of a membership interest can occur, the interest must first be offered pro rata to the other members, and/or to the company itself, before a transfer may be made to a person who is not currently a member. Unless waived, such provisions may be accompanied by an offer period of (for example) 10, 30, or 60 days.

Buy-sell and right-of-first-refusal provisions exist so that existing LLC members do not unwillingly find themselves in business with someone they do not know.

Non-Member Spouses

Are non-member spouses involved? Like real estate, personal property in Texas is presumed to be community property. A frequent error in transfers of LLC membership interest is failure to secure the signature of an assignor-seller’s non-member spouse. The result is that the entire interest may not have been conveyed, at least not in Texas. This is no different than if a grantee in a deed accepts the conveyance without requiring execution by the grantor’s spouse; since community property is presumed, the transfer may be incomplete if the spouse does not sign off, at least in a pro forma capacity.

To say that omitting the signature of a non-member spouse can drive subsequent disputes would be an understatement. Even though BOC Section 101.108 provides that a non-member spouse of an assignee may not assert control over the company, the potential for awkward and potentially disastrous disruption remains. Consider the case of a withdrawing member who is contemplating divorce but has not yet revealed this to other members who may want to buy his LLC membership interest. Will the assignment get tangled up in the parties’ divorce?

As is the case in transfers of real estate, it is common for sellers of an LLC membership interest to argue that the spouse should not be required to sign the assignment because the property transferred is a business asset rather than a part of the homestead. Real estate lawyers hear such excuses all the time. Other reasons may be given (“My wife is in China”). None of these excuses should be allowed to carry any weight unless the membership interest has been lawfully converted into separate property by a written partition agreement according to Section 4.102 et seq. of the Family Code.

What will be the accounting consequences? Is timing an issue?

There will likely be accounting consequences as a result of transferring an LLC membership interest. BOC Section 101.201 partially addresses this issue, stating “The profits and losses of a limited liability company shall be allocated to each member of the company on the basis of the agreed value of the contributions made by each member, as stated in the company’s records. . . .” This rule will apply unless the members collectively agree otherwise.

Attention should be given to the effective date of the assignment, since the transfer date may have more than one level of significance. It is advisable to select an effective date or record date for the assignment that facilitates easier calculation of profits and losses, or at least does not unduly complicate that calculation.

Will the membership interest pass a due-diligence inspection?

The issues referred to above are part of a larger group of due-diligence considerations that may concern a prospective buyer, which brings us to the due-diligence checklist in the next section.

DUE DILIGENCE BY THE ASSIGNEE-BUYER

Due diligence checklist.

The following is a partial list of items that should be of concern to a prospective assignee-buyer of an LLC Membership Interest:

(1) Valuation . Most small-business assignments of LLC membership interest occur among insiders who are already acquainted with the company’s assets, liabilities, management, and operations. For potential assignees who do not fall in this category, the question of valuation arises—not just valuation of the membership interest itself but valuation of the LLC as a whole, since the two are effectively inseparable.

Several articles could be written on how to evaluate and appraise a business; suffice it to say that there should be some rational basis for the asking price that can be independently confirmed by looking at the company’s finances and assets. Certain numbers will be hard (real property and bank accounts) and others will be soft (marketing strategy, proprietary information, and value of the brand).

If assets include real properties, an evaluation of value may include appraisals by licensed appraisers or the less-formal alternative of a broker price opinion (BPO). It is impressive if a real estate investment firm has an inventory of 30 rental properties; it is less so if half the properties are drowning in deferred maintenance. Numbers guys may be satisfied with financials and a spreadsheet; traditionalists will want to physically inspect the properties as part of the due-diligence process.

(2) Good Standing . It is important to verify that the LLC and the assignor (if a registered entity) are in good standing with the secretary of state and the comptroller. If not, they do not have the legal capacity to do business, which could potentially make execution of an LLC membership assignment invalid.

(3) Core LLC Documents . A prospective assignee-buyer will want to see core LLC documents including the certificate of formation; the certificate of filing (the secretary of state’s approval); the minutes of the first organizational meeting of members along with subsequent minutes of special meetings (if any) and annual meetings; company resolutions or grants of authority; the company agreement, as currently amended or restated; and any membership certificates that may have been issued (or at least a record of same).

Also: where are the official LLC records kept? Who is responsible for keeping them, and is access readily available? Is there a company book, i.e., a binder containing these? Failure of an LLC to keep organized and complete records is a warning sign for a potential assignee. This is true regardless of and aside from any statutory requirements for LLC record keeping.

A vital object of an assignee’s investigation should be the company agreement. The company agreement is essentially a partnership agreement among LLC members, so it will directly bind a prospective assignee . Is it valid? Is it a legal document of substance or is it a three-page printout from the internet that is not even relevant to Texas? Are provisions of the company agreement compatible with the intentions and goals of the assignee? What limitations does the company agreement impose (for example, restrictions on transfer of membership interests)? Can one easily re-sell the membership interest or are there hoops to jump through?

(4) Managers . It is operationally important to determine if the LLC is member-managed or manager-managed and, if the latter, to identity of the managers. Can the assignee work with these persons? Are they professional and competent? What is their track record?

(5) Member List . LLCs are required to keep current lists of members, their respective interests in the company, and a list of all contributions to the company. BOC Sections 101.501(a)(1)-(7). Fellow members of a smaller LLC are effectively your partners in the enterprise. It is good to know to know something about them.

(6) Contracts and Agreements with Third Parties . Any agreements with third parties that affect control, management, or operation of the LLC should be examined. Examples would be contracts with vendors or a property management agreement with a third-party management company. Is the LLC currently part of a joint venture with a different group of investors?

(7) Voting Agreements . These may or may not exist. Any one or more of the members may enter into voting agreements (including but not limited to proxies and pledges) that can affect control of the entity.

(8) Federal Tax Returns. Tax returns are important to verify how the LLC is taxed and how ownership is reported to the IRS. Tax returns and LLC records should be consistent in this respect. It is a good idea for a prospective assignee to have a CPA review the company’s tax returns.

(9) Texas Annual Filings . A prospective assignee should review the franchise tax returns and public information reports (PIRs) that must be annually filed with the comptroller’s office. Do these accurately reflect the LLC’s affairs? Are they diligently prepared and timely filed?

(10) Transactional Records . What property does the LLC own? Are warranty deeds in the name of the LLC duly recorded in the real property records? How are properties managed and who is responsible for doing so? What do the files and records look like—are they orderly or are they a mess? And what about completeness? Do files for rental properties contain all essential documents like warranty deeds, notes and loan agreements, deeds of trust, leases, appraisals, maintenance records, and so on? A specific person should be responsible for keeping such records at a designated location.

(11) Salaries, Draws, and Distributions. These should be examined to discover if there is a pattern of excessive or erratic compensation to managers or distributions to members. Is there a coherent schedule or plan? Are measures in place to insure that the LLC maintains sufficient working capital to fund existing and planned operations?

(12) Bank and Depository Accounts . Current and recent copies of account statements should be examined. Look for any unusual withdrawals or capital flows. Is the LLC adequately capitalized? Does it have an adequate capital reserve? Inadequate capitalization is the number one cause of small business failure.

(13) Records of Pending, Prospective, and Resolved Legal Actions . Is the LLC being sued? Has it been sued in the past? Do the managers have a history of shoddy or deceptive dealings? Is the LLC continually receiving DTPA notice letters from attorneys? Default letters from HOAs or appraisal districts? Does the company charter get periodically revoked (and then have to be reinstated) because the LLC fails to timely file its franchise tax return or PIR? Consider meeting with the LLC’s attorney and CPA. Require that confidentiality be waived in order to get a frank assessment of the situation.

(14) Best Practices Generally . It is important to ascertain whether or not the LLC is run with diligence, integrity, and in compliance with applicable law. What is the company culture with regard to best practices? Does the LLC have a regular business attorney and CPA to advise the managers? Or do the managers wing it on a DIY basis most of the time, counting on a surging market to cover their mistakes?

(15) Reputational Evidence . A prospective assignee may want to do some digging in order to evaluate the business and personal reputations of the managers and members. What is their professional history? The personal lives of the existing members may also be relevant: are any of them getting a divorce from a spouse who might turn into a hostile party? Was one of them just expelled from the country club for non-payment of dues? An internet search is, of course, the bare minimum but it may also be prudent to consider a private investigator (These are not just for the movies).

(16) Company Performance . How have the LLC’s investments fared, particularly over the last three years? What do the company accounts show and are these numbers verifiable? Does the spreadsheet match up with the checkbook?

Trends are an important part of value analysis. Try to reduce the LLC’s quarterly and annual results to line graphs for income and costs. Which way are these factors trending?

(17) Business Plan . Do the managers and members have specific goals or is their strategy more built around finding targets of investment opportunity? Is their plan realistic or pie-in-the-sky? What will the company likely look like in three years? Five years? Is a change in direction required?

The importance of thorough due diligence conducted during an adequate inspection period cannot be understated. Knowledge, as they say, is power. If one must sign a confidentiality or non-disclosure agreement in order to get relevant information on the LLC and its members, then that is what should be done.

CLAUSES AND PROVISIONS OF THE ASSIGNMENT

Assignments of interest generally.

All assignments of interest (regardless of the interest assigned) include—or should include—certain common clauses and provisions. After identifying the parties and the exact interest to be assigned, the document should state the consideration being paid; whether the consideration is nominal, cash, or a financed amount (secured or unsecured); recite both transfer and acceptance language; state whether the assignment is made entirely “as is” or instead with representations and warranties; state whether the assignee will have any recourse in the event certain post-assignment conditions are not met and identify the recourse mechanism; recite covenants and agreements of both parties that will result in the implementation of the transfer along with remedies for default if these measures are not carried out; a mutual indemnity clause; any special provisions agreed to by the parties; an alternative dispute resolution (mandatory mediation) clause; and conclude with various miscellaneous provisions that identify applicable law and venue, advise all parties to consult an attorney, set an effective date, and so forth.

A “Consent of Non-Member Spouses” should be appended if applicable. Exhibits to the assignment (pertaining to company assets and liabilities, for instance) may also be needed.

Representations and Warranties

An assignment may include a full set of representations and warranties (“reps and warranties”), limited reps and warranties, or no reps and warranties at all—in which case the assignment is made entirely as is and (in such cases) is almost always without recourse, meaning there is no defined remedy against the assignor-seller if the LLC membership goes sour for some reason. Representations and warranties may be made by assignor, assignee, both, or neither.

Core reps and warranties are basic assurances to which no reasonable party should object. Reps and warranties can get much more detailed and extensive from there. If attorneys are involved, the reps and warranties section of a contract may be heavily negotiated.

The assignor-seller’s goal is to minimize post-closing liability by transferring the membership interest “as is” to the maximum extent by including only a minimum number of reps and warranties. It should be noted that inclusion of the above-mentioned core items does not impair the ability of an assignor to assign an interest “as is.” For this reason, it is always somewhat suspicious when an assignor refuses to give any reps or warranties at all.

The assignee-buyer instead prefers a longer and more specific list of reps and warranties on the part of the assignor-seller. One of the goals of the assignee in the due diligence process is to ascertain, to the greatest extent practicable, the accuracy of reps and warranties that have been or will be made by the seller.

Examples of Reps and Warranties

Examples of basic reps and warranties would include assurances that each party, if a registered entity, is in good standing; the party has power and authority to enter into the transaction without joinder of others; and there exists no condition or circumstance that would render the transaction illegal or invalid or place the party in breach of an existing contract. Additional near-core items would include assurances that each party has performed adequate due diligence and has consulted an attorney before signing.

Both assignor and assignee should also want to include a statement that neither party is making or relying upon any reps or warranties that are not expressly set forth in the assignment. The goal is to prevent anyone from assuming anything or alleging that certain assurances were oral or implied.

Reps and Warranties: Duration and Default

Once reps and warranties are negotiated, it must be determined how long they will survive closing—if at all. 30 days? 90 days? Indefinitely?

A final issue in this area has to do with remedies for default in the event of breach. Attorneys frequently include a clause requiring that such default be a material (rather than a trivial) breach in order to be legally actionable. The issue is then raised, how does one define material ? One method is to impose a monetary floor, e.g., by confining assignor liability to issues that result in a loss or cost of (say) $10,000 or more.

Assignments Made “As Is”

As noted, an assignor-seller can include basic (limited) representations and warranties and still convey an LLC membership interest “as is.” Many business persons, including lawyers, do not adequately understand this. For example, stating that one has sufficient power and authority to enter into a transaction does not suggest any representation or warranty as to the item being conveyed. It is a core representation that should probably be included in every assignment.

The key to protecting the assignor is a thorough “as is” clause. Just as is true with real estate conveyances, the more thorough and extensive the “as is” clause, the better. One-liners will generally not do. This is particularly true if there have been oral or email negotiations over a period of weeks or months. The goal should be not only to convey the interest “as is” but also to entirely exclude any statement that cannot be expressly found in writing within the four corners of the assignment instrument.

Covenants and Agreements of the Parties

Covenants and agreements address the legal obligations of the parties going forward—specifically what actions they are required to take in order to implement the assignment. Covenants and agreements of the assignor-seller would include, for example, an obligation to promptly endorse and deliver to the assignee-buyer any certificates evidencing the membership interest in question.

The assignee-buyer should also covenant and agree to abide by the company agreement and other governing documents. Since Texas is a community property state, the spouse of a new assignee should also be asked to sign off on this commitment. The best practice is to secure the signatures of both the new assignee and any non-member spouse not only on the assignment but on the company agreement itself.

Additional covenants and agreements of the parties may be (and usually are) included. This is another area that is subject to extensive negotiation and customization to the circumstances.

Recourse by Assignee upon Occurrence of Specified Conditions

The option for some form of limited or conditional recourse may be included in any assignment of interest. In the case of an LLC membership interest, the assignment could provide that, upon occurrence of certain conditions, the assignee would have the right to re-convey the membership interest and receive return of all or part of the consideration. Examples of such conditions would be any adverse event—a negative outcome in a pending lawsuit or zoning proceeding; condemnation of certain LLC property; failure of a pending joint venture; or the discovery that any representations or warranties of assignor were materially false or deceptive when made. The availability of a recourse mechanism is generally time-limited, say for 90 days after closing. Some assignments might also refer to this recourse mechanism as a right to rescind.

In any assignment instrument, the alternative to full or limited recourse is no recourse at all by the assignee-buyer. For example, real estate notes are often sold without (either full or limited) recourse against the assignor-seller in the event that the borrower on the note defaults. In such a case, absent any provision for recourse, the assignee-buyer of the note would then be in possession of a non-performing asset. The remedy is not against the assignor, but to pursue the debtor directly.

Mutual Indemnity

Ideally, and unless there are special circumstances, the assignor and assignee should release and indemnify one another for LLC-related actions, claims, liabilities, and obligations occurring before and after (respectively) the effective date of the assignment. Indemnity provisions are useful and worthwhile, but one needs to clearly understand their limitations. They are not a covenant not to sue.

Non-Compete and Non-Disclosure Provisions

Sale by a departing LLC member to another member may raise concerns that the departing member will utilize proprietary and confidential information in order to compete with the company in the same line of business within the same geographical area. Agreements regarding intellectual property and non-competition are typically stand-alone full-length contracts; nevertheless, it is possible to include compact and enforceable IP and non-compete provisions that fit smoothly and purposefully into a sale and assignment of LLC membership interest. Failing to do this can be an error with serious consequences.

Corporate Transparency Act and FinCEN Reporting

The Financial Crimes Enforcement Network (FinCEN), an arm of the Treasury Department, is charged with rulemaking to enforce the Corporate Transparency Act which was passed in 2021. The CTA contains sweeping requirements regarding the reporting of beneficial interests in LLCs and corporations.

To the extent that a sale and assignment of LLC membership interest constitutes a change in beneficial ownership, then a report to FinCEN will likely be required. The assignment instrument should expressly address the applicability of the CTA and designate which party (usually the assignee) will be responsible for filing a supplemental FinCEN report.

If the burden of FinCEN reporting falls on the assignee, then the assignor may want to include an indemnity clause for added protection. The assignor may also want to limit liability for past FinCEN reporting.

Alternative Dispute Resolution: Mandatory Mediation

Since we live in a litigation nation, it is highly advisable to include a provision that requires mediation prior to commencing legal action. Approximately 80% of mediations result in a settlement. In other words, mediation works, at least most of the time.

A mediation clause should require the conflicting parties to first confer in good faith and attempt to resolve the dispute in a way that accommodates the legitimate interests of both sides. If agreement is reached, it should be reduced to a signed writing and implemented. If not, the parties should then agree to formally mediate the dispute before a certified mediator prior to resorting to litigation or filing any complaint with a governmental or administrative agency.

A mandatory mediation provision should also state where the mediation will be held (which city or county) and for how long (mediations are usually either a half-day or a full day). Each party should commit to bearing its own fees and costs until the mediation is concluded.

Special Provisions and Stipulations

It is useful to include a catch-all special provisions section that allows room for terms that may be specific to the subject transaction and its unique circumstances. These special agreements and provisions frequently arise and this is the place to insert them.

Stipulations are a slightly different concept. For example, an assignment of LLC membership interest may involve a new list of members. It may also require a re-allocation of percentage interests among the remaining members. So it may be beneficial to include a stipulation that after conclusion of the assignment, the new membership list (with accompanying revised percentage interests) will be as described in Exhibit A. This usefully erases any doubt as to the overall final outcome of the transaction.

As previously noted, a special meeting of members is an important companion document to the assignment of LLC membership interest. The meeting, signed by all affected parties, can not only approve the assignment but mention issues such as record date, a general ratification of the assignment and the new member list, and also authorize issuance of new membership certificates.

No Reliance and No Representation Clauses

The assignor-seller (in particular) may want to make it clear that the assignment is made and accepted by the assignee-buyer only after a proper due-diligence investigation and without reliance on any statements or assurances (especially oral ones) made by the assignor-seller or its agents.

Wrap-Up Provision Relating to Execution and Delivery of Documents and Records

It would be an oversight if an assignment of LLC membership interest failed to mention possession and delivery of company books and records, an omission that has resulted in more than a few lawsuits. An agreement to execute and deliver such additional and further documents as may be reasonably necessary to effectuate the purposes of the assignment should cover and include any affected LLC records, including the company book and accounting records. These may need to be transferred to a new assignee-owner or returned to the assignor-seller after due-diligence inspection.

Clients often do not understand why a sale and assignment of LLC membership interest cannot be a simple, one-page document. It is hoped that this article will clarify the answer to that question.

Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2024 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com .

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Assignment of Limited Liability Company Interest

By Joe Stone, J.D.

Do All Members of an LLC Have to Sign the Purchase Contract?

As a limited liability company member, you usually have the right to assign your membership interest in the LLC to a nonmember, subject to the requirements of state LLC law. Typically, the assignment provides the nonmember with the right to receive your share of any LLC profits but does not give the nonmember any of your management rights. The remaining LLC members usually decide whether the nonmember is admitted as a member with management rights.

Assignments

An assignment involving your LLC membership occurs whenever there is a transfer of your property rights in the membership. The transfer of rights can occur voluntarily such as in a sale of your membership to cash out of the LLC. Another type of voluntary transfer involves using your membership to satisfy your personal debts in lieu of bankruptcy, generally referred to as an assignment for the benefit of creditors. A transfer of your membership to your legal heirs or designated beneficiaries occurs by operation of law upon your death. In each situation, the assignment results in a complete transfer of your property rights in your LLC membership.

LLC Membership Interest

An LLC is commonly considered a cross between a corporation and partnership. LLC members enjoy personal liability protection, as do a corporation's shareholders, and the ability to structure the LLC management to suit their own needs, as in a partnership. An LLC is also like a partnership in that the profits and losses of the LLC are passed through to each member just as in a partnership. As a result, your LLC membership consists of two parts: an economic interest -- the right to share in the profits and losses of the LLC; and a control interest -- the right to vote on and manage the affairs of the LLC.

Membership Transfer Rules

If a member assigns his LLC membership to a nonmember without the consent of the other members, state law typically limits the assignment to only economic rights, not control rights. For example, Arizona Revised Statute 29-732 states that “the assignment of an interest in a limited liability company does not…entitle the assignee to participate in the management of the business and affairs of the limited liability company or to become or to exercise the rights of a member.” The Revised Uniform Limited Liability Act, which has been adopted in nine states as of June 2013, contains a similar provision that states, "the transferor retains the rights of a member other than the interest in distributions transferred and retains all duties and obligations of a member." To acquire control rights, the LLC members must consent to extend full membership to the nonmember.

Other Considerations

LLC members usually create an operating agreement to govern their rights and duties to the LLC and each other. Unless specifically prohibited by state law, the members can agree to provisions in the operating agreement that alter the default rules that apply under state law. In anticipation of future assignments, the members can include in an operating agreement the rules for whether control rights can be assigned with economic rights and under what conditions.

FindLaw: Legal Dictionary -- Assignment
Texas Secretary of State: Selecting A Business Structure
The Free Dictionary: Limited Liability Company
Arizona Legislature: Arizona Revised Statute 29-732
National Conference of Commissioners on Uniform State Laws: Revised Uniform Limited Liability Act
National Conference of Commissioners on Uniform State Laws: Enactment Status Map -- RULLCA
SBA.gov: Operating Agreements; The Basics

Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.

How to Change Ownership of a California LLC
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LLCs/LPs: Assignment of LLC/LP Interests (Short Form) | Practical Law

LLCs/LPs: Assignment of LLC/LP Interests (Short Form)

Practical law standard document 7-521-6949 (approx. 8 pages).

Assignment of Interest: Everything You Need to Know

Assignment of interest takes place when a company is formed and the members or owners decide on the ownership percentages they will each hold. 3 min read updated on January 01, 2024

Assignment of interest takes place when a company is formed and the members or owners decide on the ownership percentages they will each hold. It also occurs when a member decides to leave the company and transfer their interest to another.

What Is an LLC?

An LLC, or limited liability company, is a business structure that offers liability protection to its members. The members of an LLC are essentially its owners, like the shareholders in a corporation. In the event of any financial or legal issues with the business, the members are protected from creditors taking any of their personal assets.

The interest percentages allotted to the LLC members are usually proportional to their capital contributions or their managerial responsibilities. This is also called their membership interest. LLC members who hold interest in the business are entitled to profit distribution as well as voting rights over company matters.

When members of an LLC retire or leave the business, they can assign their interest to another existing member or a new member. The LLC's operating agreement should outline how such a transfer should be handled. If there are no provisions for assignment of interest in the operating agreement, the state in which the LLC conducts business should have rules and regulations to follow instead.

LLC members tend to have more control over the daily operations of the business when compared to corporate shareholders. Usually, the members of an LLC are actually the individuals who started the business, so they have a strong desire to see the company succeed.

How Assigning Interest Works

LLC members assign interest when they need to hand their rights and responsibilities to the company over to another individual or business entity. One member's interest can be transferred to another in full or in part.

For instance, a retiring LLC member's interest in the business including all of the following aspects:

Voting rights
Managerial duties
Profit sharing

That member might choose to give their managerial duties to one person and their voting rights and profit shares to another. Basically, members reserve the right to assign their interest in any way they see fit, as far as the operating agreement allows.

Once the new member receives the interest, they inherit all of the rights and responsibilities that come with LLC membership that particular business, unless the operating agreement states otherwise.

Sometimes membership interest can be transferred, but the original member can hold onto their voting rights in the business, while the new member takes over the other rights and duties.

What Is an Assignment of Interest Agreement?

Assignment of interest agreements are the documentation for any transfer of interest in an LLC. In the contract, you should find the following information:

Name of original interest holder
Type of interest being transferred
Name of the individual or entity to receive the interest
Name of the LLC
Percentage of interest being assigned
Date of assignment
Other applicable terms and conditions

Once the assignment of interest agreement is signed by both parties, the giver of the interest and the receiver, the new holder of the membership interest agrees to follow the rules laid out in the various documents that govern the LLC. Such documents likely include the operating agreement and formation documents .

If the membership interest requires any initial or ongoing contributions to the business, the new interest holder is required to offer or continue such payments.

Aspects of Assignment of Interest to Keep in Mind

Depending on where the LLC is registered, the state might have specific laws regarding how assignment of interest is to be handled. Anytime major decisions or changes are happening in a business, it's always a good idea to double check the laws for the area.

Some states don't require the approval of LLC members for an assignment of interest, but they do limit the rights of the new member or receiver of the interest.

Operating agreements are the main governing power in such events, so an LLC might choose to forbid any interest assignments or transfers when they form the business. LLC members also reserve the right to lay out certain restrictions for interest assignments like the requirement of unanimous member approval.

The LLC's articles of organization may also include details regarding the assignment of membership interest.

If you need help with assignment of interest, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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LLC Membership Interest Transfer Agreement
Transfer of Membership Interest in LLC: Everything to Know
Assignment of Interest In LLC
LLC Membership
Assignment of Interest Form
Can an LLC Be a Member of an LLC
LLC Purchase Agreement
LLC Board of Managers
Sale of Membership Interest in LLC Form
LLC Legal Structure

Personal Finance

Educational tax credits and deductions you can claim for year 2023.

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created independently from TIME’s editorial staff. Learn more about it.

Average higher-education costs for tuition, fees, and room and board have climbed over the last few decades, from $11,411 in 1964 to $26,903 in 2022, according to the U.S. Department of Education’s Institute of Education Sciences via its National Center for Education Statistics If you are enrolled in college, have paid for your own education expenses, or have paid for a dependent’s education expenses, you may be eligible for education tax benefits that can help offset some of the burden of higher-education costs. There are two main types of education tax benefits: tax credits and tax deductions.

A tax credit is the more beneficial of the two because it reduces your tax bill dollar for dollar. This means that if you have a $1,000 credit, your tax bill will be reduced by $1,000.

A tax deduction reduces your taxable income, not your tax bill. Your bill is reduced by only a portion of the deduction. You calculate this amount by multiplying your deduction by your marginal tax rate, which can range from 10% to 37% . Thus, if your tax deduction is $1,000, your tax bill could be reduced by anywhere from $100 to $370.

The two education tax credits available to you are the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC), but you can’t take both credits in the same year for the same student. The one tax deduction available to you is for the amount of student loan interest you have paid in the year.

What is the American opportunity tax credit (AOTC)?

The AOTC is for students in the first four years of higher education. You can claim it if you:

Have qualified education expenses.
Were enrolled at least half time in at least one academic period in the tax year.
Are in your first four years of higher education.
Haven’t claimed the AOTC or former Hope tax credit for more than four tax years.
Haven’t had a felony drug conviction.

The AOTC maxes out at $2,500 per student. It is calculated on 100% of your first $2,000 in qualified education expenses and 25% of the next $2,000. The AOTC is partially refundable. Even if you do not owe any taxes, you can receive up to 40% of it ($1,000) as a tax refund.

There are income limits for the AOTC. The credit phases out from a modified adjusted gross income (MAGI) of $80,000 to $90,000 for a single taxpayer, head of household, or qualifying widow(er) ($160,000 to $180,000 for married filing jointly). The credit cannot be claimed if you are a married taxpayer filing separately.

What is the lifetime learning credit (LLC)?

The LLC is for qualified expenses for eligible students enrolled in an eligible educational institution . There is no maximum number of years you can claim the LLC, and it can be used for a wider variety of purposes than the AOTC. These include:

Undergraduate courses.
Graduate courses.
Professional programs.
Courses aimed at acquiring or improving job skills.

You can claim this credit if:

You, your dependent, or a third party paid qualified education expenses for higher education.
You, your dependent, or a third party paid for an eligible student enrolled at an eligible educational institution.
The eligible student is yourself, your spouse, or a dependent listed on your tax return.

An eligible student is:

Enrolled or taking courses at an eligible educational institution.
Taking courses to obtain a degree or improve job skills.
Enrolled for at least one academic period beginning in the tax year.

The LLC maxes out at $2,000 per return. It is calculated on 20% of the first $10,000 of your qualified education expenses. It is not refundable. If the credit brings your taxes due to zero, there is no amount you can receive as a refund.

There are income limits for the LLC. The credit phases out from a MAGI of $80,000 to $90,000 for a single taxpayer, head of household, or qualifying widow(er) ($160,000 to $180,000 for married filing jointly). It can’t be claimed if you are a married taxpayer filing separately.

AOTC vs. LLC

There are different parameters for each credit. Because you cannot claim both for the same student in a tax year, you should weigh the value of each one based on your specific situation and education expenses. Here is a quick guide to some of the most important similarities and differences.

What is the student loan interest deduction?

The student loan interest deduction allows you to deduct up to $2,500 of student loan interest you have paid in the tax year. You can take the student loan interest deduction even if you do not itemize your taxes because it is considered an adjustment to income rather than an itemized deduction. In 2023 the amount is phased out at a MAGI between $75,000 and $90,000 for a single taxpayer ($155,000 and $185,000 for married filing jointly).

Education tax forms

Form 1098-t, tuition statement.

You receive a Form 1098-T , Tuition Statement, from an eligible educational institution where you are a student with a reportable transaction during the year. You can use the information from this form to claim education tax credits when you file your taxes.

Form 1098-E, Student Loan Interest Statement

You receive a Form 1098-E , Student Loan Interest Statement, from a financial institution to which you’ve paid $600 or more in student loan interest during the year. You can use this information to claim your student loan interest deduction.

Form 8863, Education Credits

Form 8863 , Education Credits, is the form you complete to determine your eligibility for, calculate the amount of, and claim the AOTC or LLC. The refundable portion of your AOTC is calculated on line 8, and the nonrefundable portion of your AOTC or LLC is calculated on line 19.

Form 1040, U.S. Individual Income Tax Return

Form 1040 , U.S. Individual Income Tax Return, is your annual income tax return. The refundable portion of your AOTC from line 8 of Form 8863 is entered on line 29 of Form 1040.

Schedule 1, Additional Income and Adjustments to Income

Schedule 1 , Additional Income and Adjustments to Income, is an additional schedule to Form 1040 on which you will enter your student loan interest deduction, under “Adjustments to Income” on line 21.

Schedule 3, Additional Credits and Payments

Schedule 3 , Additional Credits and Payments, is an additional schedule to Form 1040 on which you will enter the nonrefundable portion of the AOTC or LLC that you calculated on Form 8863. The nonrefundable portion of your education tax credit from line 19 of Form 8863 is entered on line 3 of Schedule 3.

It's not too late to start a 529 plan

A 529 plan , also known as a “ qualified tuition program ,” is a tax-advantaged savings account that can be used for qualified education expenses. Earnings in a 529 plan grow tax free, and you do not have to pay taxes when you withdraw funds as long as they are used for qualified education expenses. In addition to qualified higher education expenses, you can also use a 529 to fund primary or secondary school at a public, private, or religious school, up to $10,000 per year per beneficiary.

Funds from a 529 plan can not only be used to pay tuition and fees; they can also be used for room and board, books, and supplies required for attendance at an eligible educational institution.

The Internal Revenue Service (IRS) has relaxed the rules for excess funds from 529 plans in recent years. You can now use up to $10,000 (the lifetime limit) to pay off your student loan debt and, as of 2024, you can roll over leftover funds into a Roth individual retirement account (IRA) . Because the rules are more flexible than ever before, it’s never too late to start a 529 plan for yourself or a loved one to take advantage of its tax benefits.

New 529 options in 2024

As of Jan. 1, 2024, you can now roll over leftover 529 plan funds into a Roth IRA. There is a $35,000 lifetime limit per beneficiary on the rollovers. The annual contribution limit to an IRA is $7,000 in 2024 ($8,000 if you’re 50 or older). The beneficiary’s earned income for the year must exceed the annual contribution limit. If it doesn’t, the limit is reduced to the amount of earned income.

The 529 plan account must have existed for at least 15 years prior to the rollover into a Roth IRA with the same named beneficiary or taxes and penalties will apply. Rollovers from a 529 plan are not subject to the typical Roth IRA income limits, so you can use this strategy even if you are otherwise ineligible to contribute to a Roth IRA.

Coordinating tax credits for education with tax-free 529 withdrawals

You can claim a tax credit in the same year as you make a tax-free withdrawal from a 529 plan as long as you use the funds for different expenses. As the tax credits do not cover room and board expenses, you can take tax-free 529 withdrawals to pay for room and board while you pay tuition and fees with other funds to take advantage of tax credits.

Additionally, the AOTC is calculated on just the first $4,000 of your education expenses, while the LLC is calculated on the first $10,000. If you have additional education expenses, the remainder can be paid with your tax-free 529 withdrawals.

TIME Stamp: Offset the significant cost of higher education with education tax credits and deductions

Higher education costs are substantial . You can maximize your education tax credits and deductions to help offset the burden of paying for higher education. The AOTC and LLC cannot be claimed for the same person in the same year, but you can coordinate paying different education expenses in the same year as you take withdrawals from your 529 to maximize both the credits and tax-free 529 plan withdrawals.

The student loan interest deduction is helpful once you’re making repayments of your student loans. It can be claimed whether or not you itemize your deductions because it is considered an adjustment to income rather than an itemized deduction. Be sure to keep proper documentation of all your education expenses if you’re taking advantage of these education tax benefits.

Frequently asked questions (FAQs)

What are education credits from the irs.

Education credits are tax credits offered by the IRS that directly reduce your tax bill on a dollar-for-dollar basis. There are two main education tax credits: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC).

What is the $1,000 tax credit for college students?

Up to $1,000 of the AOTC is refundable. If your tax bill is reduced to zero, you can have 40% of the remaining AOTC refunded to you. The full AOTC is worth $2,500 if you paid $4,000 or more in qualified education expenses, so 40% of the full tax credit is $1,000.

How do I claim education expenses on my taxes?

To claim an education tax credit, you will need to complete Form 8863 and submit it with your Form 1040. The nonrefundable portion of the AOTC or the LLC is entered on line 3 of Schedule 3, and the refundable portion of AOTC is entered on line 29 of Form 1040.

How do education tax benefits affect financial aid?

You report your adjusted gross income (AGI) from Form 1040 on the Free Application for Federal Student Aid (FAFSA) when applying for need-based financial aid. The FAFSA uses tax information from two years prior to the upcoming school year. For example, the 2024-2025 FAFSA asks for 2022 tax information. Education tax credits are included on your tax return after AGI, so they do not impact it for FAFSA reporting.

The student loan interest deduction will impact your AGI because it is included in adjustments to income on line 10 of Form 1040 before AGI is calculated on line 11. However, student loan repayments are not typically required until six months after you have graduated or are no longer enrolled at least half time, so the deduction should not be an issue for financial aid while you’re still in school.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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IRS reminder: 2024 first quarter estimated tax payment deadline is April 15

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Estimated tax payments | ASL

IR-2024-95, April 5, 2024

WASHINGTON —The Internal Revenue Service today advised taxpayers, including self-employed individuals, retirees, investors, businesses and corporations about the April 15 deadline for first quarter estimated tax payments for tax year 2024.

Since income taxes are a pay-as-you go process, the law requires individuals who do not have taxes withheld to pay taxes as income is received or earned throughout the year. Most people meet their tax obligations by having their taxes deducted from their paychecks, pension payments, Social Security benefits or certain other government payments including unemployment compensation.

Generally, taxpayers who are self-employed or in the gig economy are required to make estimated tax payments . Likewise, retirees, investors and others frequently need to make these payments because a significant portion of their income is not subject to withholding.

When estimating quarterly tax payments, taxpayers should include all forms of earned income, including part-time work, side jobs or the sale of goods or services commonly reported on Form 1099-K .

Income such as interest, dividends, capital gains, alimony and rental income is normally not subject to withholding. By making quarterly estimated tax payments, taxpayers can avoid penalties and uphold their tax responsibilities.

Certain groups of taxpayers, including farmers and fishers, recent retirees, individuals with disabilities, those receiving irregular income and victims of disasters are eligible for exceptions to penalties and special regulations .

Following recent disasters, eligible taxpayers in Tennessee , Connecticut , West Virginia , Michigan , California and Washington have an extended deadline for 2024 estimated tax payments until June 17, 2024. Similarly, eligible taxpayers in Alaska , Maine and Rhode Island have until July 15, 2024, and eligible taxpayers in Hawaii have until Aug. 7, 2024. For more information, visit Tax relief in disaster situations .

In addition, taxpayers who live or have a business in Israel, Gaza or the West Bank, and certain other taxpayers affected by the terrorist attacks in the State of Israel , have until Oct. 7, 2024, to make estimated tax payments.

Paying estimated taxes

Taxpayers can rely on Form 1040-ES, Estimated Tax for Individuals , for comprehensive instructions on computing their estimated taxes.

Opting for the IRS Online Account streamlines the payment process, allowing taxpayers to view their payment history, monitor pending payments and access pertinent tax information. Taxpayers have several options to make an estimated tax payment, including IRS Direct Pay , debit card, credit card, digital wallet or the Treasury Department's Electronic Federal Tax Payment System (EFTPS) .

To pay electronically and for more information on other payment options, visit IRS.gov/payments . If paying by check, be sure to make the check payable to the "United States Treasury."

Publication 505, Tax Withholding and Estimated Tax , offers detailed information for individuals navigating dividend or capital gain income, alternative minimum tax or self-employment tax, or who have other special situations.

The IRS recommends taxpayers use the Tax Withholding Estimator tool to accurately determine the appropriate amount of tax withheld from paychecks.

Regularly monitoring withheld taxes helps mitigate the risk of underpayment, reducing the likelihood of unexpected tax bills or penalties during tax season. It also allows individuals to adjust withholding upfront, leading to larger paychecks during the year and potentially smaller refunds at tax time.

Filing Options

The IRS encourages people to file their tax returns electronically and choose direct deposit for faster refunds. Filing electronically reduces tax return errors because tax software does the calculations, flags common errors and prompts taxpayers for missing information.

The IRS offers free online and in-person tax preparation options for qualifying taxpayers through the IRS Free File program and the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs .

In addition, the Direct File pilot program, a new option that allows eligible taxpayers to file their federal tax returns online directly with the IRS for free, is currently available in 12 participating states.

Assistance available 24/7 on IRS.gov

IRS.gov offers tax assistance 24/7. To address general tax concerns, taxpayers can access various online tools on the IRS website, to include the Interactive Tax Assistant , tax topics and frequently asked questions to get answers to common questions.

The IRS has also posted translated tax resources in 20 other languages on IRS.gov to communicate to taxpayers who prefer to get information in other languages. For more information, see the IRS Languages page on IRS.gov.

More information:

⦁ Topic no. 653, IRS notices and bills, penalties, and interest charges

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How Are Shares Issued...

How Are Shares Issued for an LLC? A Guide to Issuing Membership Interests

Apr 12, 2024

When forming a company, selecting a business structure is one of the first and most fundamental decisions you will make.

Among the array of choices, the Limited Liability Company (LLC) stands out for its flexibility, tax advantages, and limited liability protection.

However, a common point of confusion arises when LLC owners consider the issue of shares. Unlike corporations, LLCs do not issue stock. So, how are shares issued for an LLC?

Instead, they offer membership interests. This distinction is essential for LLC owners to understand as they explore options for growing their business and attracting investment.

How Are Shares Issued for an LLC?

Equity in an LLC refers to ownership interests, also known as membership interests. Each member’s interest in the LLC is usually determined by the amount they have invested in the business, outlined in the LLC’s operating agreement.

LLCs differ from corporations in several ways, notably in how ownership is structured and taxed. Members enjoy profits according to their ownership percentages, and this flexibility in profit distribution is a unique feature of the LLC.

Tax implications also vary significantly. While corporations face double taxation—once at the corporate level and again on dividends—LLCs typically benefit from pass-through taxation.

This means profits and losses pass directly to members, who report them on their personal tax returns, avoiding double taxation.

How Are Shares Issued for an LLC? Detailed Guide

Why LLCs Do Not Issue Stock

The legal foundation of an LLC inherently prohibits the issuance of stock. This structure is designed to offer the benefits of both partnerships and corporations, maintaining a separation between the company’s debts and the personal liabilities of its members.

The issuance of stock is a characteristic of corporations that does not align with the legal and structural makeup of an LLC. Understanding this helps clarify why LLCs manage equity through membership interests, not shares.

Alternatives to Issuing Stock in an LLC

Since LLCs do not issue stock, how can they bring in new investors or reward employees? The answer lies in the flexibility of membership interests and profit interests.

Membership Interest: This represents an ownership stake in the LLC , including rights to profits, losses, and assets.

Unlike stock, membership interests do not come in “shares.” They are often more fluid, and LLCs can tailor the rights and duties associated with these interests in their operating agreement.

Profit Interests: This is a form of compensation that offers a share in the LLC’s future profits without conveying ownership of its current assets. It can be an attractive option to incentivize employees or partners.

Units vs. Shares: Some LLCs use the term “units” to describe membership interests, especially when structured to mimic the share-based system of a corporation.

However, it’s important to understand that these units, whilst similar in concept to shares, still operate under the unique legal framework of an LLC.

Step-by-Step Guide to Issuing Membership Interests

Issuing membership interests in an LLC is subject to both the internal rules of the LLC, outlined in the operating agreement, and external legal requirements. Here’s a general process:

Preparing an Operating Agreement: Ensure your operating agreement clearly defines how membership interests are issued, transferred, and what they entail. This document is critical for governing the LLC’s operations and the rights of its members.

Determining the Value of Membership Interests: Establishing a clear method for valuing the company and, by extension, the membership interests, is essential for transparency and fairness among current and prospective members.

Documentation for Membership Certificates: Though not shares, LLCs often issue membership certificates to signify ownership. These certificates should detail the rights and responsibilities associated with the membership interest.

Regulatory and IRS Considerations: Compliance with state regulations and the IRS , especially regarding valuation and reporting of membership interests, is crucial. Failing to adhere to these requirements can lead to legal and financial penalties.

Managing and Transferring LLC Membership Interests

Adding new members to an LLC or allowing current members to exit involves a clear process, as outlined in the LLC’s operating agreement .

This process typically requires the consent of existing members and adherence to any stipulated conditions for membership transfer.

This flexibility allows LLCs to adapt to changing investment needs and ownership structures while maintaining control over who becomes a member.

LLC Equity Management Best Practices

Managing LLC equity requires diligence and accuracy. Keeping meticulous records of all transactions involving membership interests ensures transparency and legal compliance.

Regular consultations with an attorney can help navigate the complex legal landscape of LLC equity management.

Additionally, periodic evaluation of the value of membership interests, reflecting the current state of the business, aids in making informed decisions for the future of the LLC.

Frequently Asked Questions

Can an LLC ever convert to a corporation to issue shares?

Yes, an LLC can convert to a corporation through a process outlined by state law. This conversion allows the business to issue stock, subject to the corporate regulatory framework.

What’s the difference between a membership unit and a share of stock?

A membership unit signifies ownership in an LLC and comes with rights outlined in the operating agreement. A share of stock signifies ownership in a corporation and comes with corporate rights and obligations.

How do I determine how much a membership interest is worth?

The value of a membership interest often depends on the LLC’s total valuation and the agreement among members. Valuation methods can vary, making consultation with a financial professional advisable.

Can LLC interests be traded publicly?

Generally, LLC interests cannot be traded on public exchanges like corporate stock . Transfers of membership interests are typically handled privately, according to the terms of the operating agreement.

Understanding how equity works in an LLC is crucial for anyone looking to start or invest in this type of business structure.

While LLCs do not issue shares in the traditional sense, the flexibility of membership interests provides a unique mechanism for managing ownership and investment.

Properly issuing and managing these interests requires careful planning, adherence to legal requirements, and regular consultations with legal and financial advisors.

By following the guidelines outlined here, LLC owners can navigate the complexities of equity management, ensuring their business remains compliant and poised for growth.

THE 10 BEST Moscow Points of Interest & Landmarks

Points of interest & landmarks in moscow.

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1. Red Square

2. The Exhibition of Achievements of National Economy (VDNKh)

3. Ostankino TV Tower

4. Old Arbat (Stary Arbat)

5. Fountain Druzhba Narodov

6. Moscow-City

7. Nikolskaya Ulitsa

8. Lenin's Mausoleum

9. Tverskaya Street (Ulitsa)

10. Kuznetsky Most Street

11. Tsar Bell and Tsar Cannon

12. Lobnoye Mesto

13. New Arbat (Novy Arbat)

14. Maly Theatre, Bolshaya Ordynka

15. Epiphany Cathedral

16. Manezh Square

17. Kitai-Gorod and Varvarka Street

18. Kremlin in Izmailovo

19. Palace of Tsar Alexei Mikhailovich in Kolomenskoye

20. Monument to Conquerors of Space

21. Revolution Square (Ploshchad Revolutsii)

22. Moscow Cathedral Mosque

23. Viewpoint at the Rooftop of Central Children's World

24. Yeliseyevskiy

25. Hotel Ukraine

26. House of Friendship With Peoples of Foreign Countries (A.A. Morozov's mansion)

27. Pavilion Armenia

28. St. Daniel Monastery

29. Zamoskvorechie

30. Severnyi Rechnoi Vokzal

What travelers are saying

Moscow-City
Nikolskaya Ulitsa
The Exhibition of Achievements of National Economy (VDNKh)
Fountain Druzhba Narodov
Monument to Conquerors of Space
Ostankino TV Tower
Tverskaya Street (Ulitsa)
Teatralnaya Square
Hotel Ukraine
Palace of Tsar Alexei Mikhailovich in Kolomenskoye
Nativity Church at Putinki
Khitrovskaya Square
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Pilot trial of perampanel on peritumoral hyperexcitability and clinical outcomes in newly diagnosed high-grade glioma

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ORCID record for Steven Tobochnik
For correspondence: [email protected]
ORCID record for Maria K. C. Dorotan
ORCID record for Sylwia Stopka
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Background Glutamatergic neuron-glioma synaptogenesis and peritumoral hyperexcitability promote glioma growth in a positive feedback loop. The objective of this study was to evaluate the feasibility and estimated effect sizes of the AMPA-R antagonist, perampanel, on intraoperative electrophysiologic hyperexcitability and clinical outcomes.

Methods An open-label trial was performed comparing perampanel to standard of care (SOC) in patients undergoing resection of newly-diagnosed radiologic high-grade glioma. Perampanel was administered as a pre-operative loading dose followed by maintenance therapy until progressive disease or up to 12-months. SOC treatment involved levetiracetam for 7-days or as clinically indicated. The primary outcome of hyperexcitability was defined by intra-operative electrocorticography high frequency oscillation (HFO) rates. Seizure-freedom and overall survival (OS) were estimated by the Kaplan-Meier method. Tissue concentrations of perampanel, levetiracetam, and metabolites were measured by mass spectrometry.

Results HFO rates were similar between perampanel-treated and SOC cohorts. The trial was terminated early after interim analysis for futility, and outcomes assessed in 11 patients (7 perampanel-treated, 4 SOC). Over a median 281 days of post-enrollment follow-up, 27% of patients had seizures, including 14% treated with perampanel and 50% treated with SOC. OS in perampanel-treated patients was similar to a glioblastoma reference cohort (p=0.81). Glutamate concentrations in surface biopsies were positively correlated with HFO rates in adjacent electrode contacts and were not significantly associated with treatment assignment or drug concentrations.

Conclusions A peri-operative loading regimen of perampanel was safe and well-tolerated, with similar peritumoral hyperexcitability as in levetiracetam-treated patients. Maintenance anti-glutamatergic therapy was not observed to impact survival outcomes.

Competing Interest Statement

S.T. received non-monetary research support for this study from Eisai (FYC-IIS-M001-1100) in the form of perampanel study drug, and has served in consulting roles for Blackrock Neurotech. K.L.L. is the founder and equity holder of Travera, a consultant for BMS, Integragen, Blaze Bioscience, and has received research support from BMS and Lilly. E.A.C. is an advisor to Bionaut Labs, Genenta Inc, Insightec Inc, Seneca Therapeutics, Theriva Biologics, has equity options in Bionaut Laboratories, Immunomic Therapeutics, Seneca Therapeutics, and Ternalys Therapeutics, is co-founder and on Board of Directors of Ternalys Therapeutics, has received research support from Advantagene, NewLink Genetics and Amgen, and has patents related to oncolytic viruses under the possession of Brigham and Womens Hospital licensed to Candel Therapeutics, Inc. T.R.S. has equity options in Phebe Health. P.Y.W. has served in consulting or advisory roles to AstraZeneca, VBI Vaccines, Bayer, Prelude Therapeutics, Mundipharma, Black Diamond Therapeutics, Day One Biopharmaceuticals, Sapience Therapeutics, Celularity, Novartis, Merck, Chimerix, Servier, Insightec, Novocure, Sagimet Biosciences, Boehringer Ingelheim, Servier, Genenta Science, Prelude Therapeutics, GlaxoSmithKline, Anheart Therapeutics, Kintara Therapeutics, Mundipharma, Novocure, SymBio Pharmaceuticals, Tango Therapeutics, Telix Pharmaceuticals, and received research funding from AstraZeneca, Merck, Novartis, Lilly, MediciNova, Vascular Biogenics, VBI Vaccines, Bayer, Nuvation Bio, Chimerix, Karyopharm Therapeutics, Servier, Black Damond, Erasca, Inc, Quadriga Biosciences. N.Y.R.A. is a key opinion leader for Bruker Daltonics and receives research support from EMD Serono and Thermo Finnigan. J.W.L. is co-founder of Sotyera, a consultant for SK Biopharmaceuticals, and performs contract work for Bioserenity and Teladoc. The remaining authors declare no competing interests.

Clinical Trial

NCT04497142

Funding Statement

National Cancer Institute (P50CA165962 to S.T., K.L.L., N.Y.R.A); National Cancer Institute (U54CA210180 supporting N.Y.R.A); National Institute of Biomedical Imaging and Bioengineering (P41EB015898 supporting N.Y.R.A and A.J.G.); Dana-Farber Cancer Institute PLGA Fund (supporting N.Y.R.A); Massachusetts Life Sciences Center (supporting N.Y.R.A)

Author Declarations

I confirm all relevant ethical guidelines have been followed, and any necessary IRB and/or ethics committee approvals have been obtained.

The details of the IRB/oversight body that provided approval or exemption for the research described are given below:

The IRB of Dana-Farber Cancer Institute gave ethical approval for this work

I confirm that all necessary patient/participant consent has been obtained and the appropriate institutional forms have been archived, and that any patient/participant/sample identifiers included were not known to anyone (e.g., hospital staff, patients or participants themselves) outside the research group so cannot be used to identify individuals.

I understand that all clinical trials and any other prospective interventional studies must be registered with an ICMJE-approved registry, such as ClinicalTrials.gov . I confirm that any such study reported in the manuscript has been registered and the trial registration ID is provided (note: if posting a prospective study registered retrospectively, please provide a statement in the trial ID field explaining why the study was not registered in advance).

I have followed all appropriate research reporting guidelines, such as any relevant EQUATOR Network research reporting checklist(s) and other pertinent material, if applicable.

Data Availability

All data produced in the present study are available upon reasonable request to the authors

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Supplementary Material

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Pilot trial of perampanel on peritumoral hyperexcitability and clinical
Background Glutamatergic neuron-glioma synaptogenesis and peritumoral hyperexcitability promote glioma growth in a positive feedback loop. The objective of this study was to evaluate the feasibility and estimated effect sizes of the AMPA-R antagonist, perampanel, on intraoperative electrophysiologic hyperexcitability and clinical outcomes. Methods An open-label trial was performed comparing ...

Assignment of Membership Interest: The Ultimate Guide for Your LLC

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Necessary Approvals and Consent

Impact on Ownership, Voting, and Profit Rights

Types of Membership Interest Transfers

Complete Assignment

Partial Assignment

How to Draft an Assignment of Membership Interest Agreement

Key elements to include:

Step 1: Gather Relevant Information

Step 2: Review the LLC's Operating Agreement

Step 3: Obtain Necessary Approvals and Consents

Step 4: Outline the Membership Interest Being Transferred

Step 5: Determine the Effective Date of the Assignment

Step 6: Specify Conditions and Representations

Step 7: Address Tax and Liability Issues

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