How to Transfer Ownership of an LLC in 7 Steps

So, it’s time to say goodbye to your beloved limited liability company (LLC). Whether you’re selling, bidding adieu, or passing the reins to someone new, the good news is that you can transfer ownership of an LLC on your own.

Regardless of whether you’re looking to cash out or say goodbye, our team of experts at doola can handle this process for you to ensure that you check all the boxes.

In this guide, we’ll explain how to transfer ownership of your LLC to someone else in seven steps. 

Can Ownership of an LLC be Transferred?

One of the perks of having an LLC is that even if you sell the business, a simple transfer of ownership can keep it chugging along like nothing happened.

The LLC’s operating agreement should have all the details regarding transferring ownership. It’s like a rulebook that outlines how the business operates.

While it’s not required by law, most LLCs have one, and inside, you’ll find the step-by-step process for transferring ownership. 

7 Steps for Transferring LLC Ownership

The process can differ depending on whether you’re selling the entire LLC or just changing who’s in charge of your family LLC. Below are seven steps you should follow when you want to transfer ownership of an LLC.

1. Decide Whether It’s a Partial and Full Transfer of LLC Ownership

You need to figure out whether you’re doing a full or partial transfer of ownership. If you’re doing a partial transfer, you must decide how much of the LLC you sell. The details about the two kinds of LLC ownership transfer are discussed below.

Partial Transfer of LLC Ownership

Transferring a partial interest in an LLC applies when you are not selling the entire business and do not own the entire LLC outright. For example, you may own a portion of the LLC with one or more other members and wish to transfer only your share of ownership to someone else.

Full Transfer of LLC Ownership

When you sell the entire LLC, you’re transferring ownership of everything associated with it, including assets, debts, contracts, and obligations. This makes the process a bit more complex since there are extra-legal and financial aspects to consider. 

2. Review Your Operating Agreement and Articles of Organization

When you formed your LLC, you probably put together a document called the “Operating Agreement.” This agreement sets out how your business is supposed to operate and covers things like who owns what percentage of the company and what happens if someone wants to sell their share.

If your operating agreement has a buy-sell provision, then transferring ownership will be a breeze. Just follow the steps outlined in the agreement, and you’ll be ready. Your Articles of Organization may also have a similar provision, so it’s a good idea to check those as well.

But if you don’t have a buy-sell provision in either of the documents, don’t panic! You can always add one by checking with your state’s business registration agency and consulting with a lawyer. 

3. Negotiate With Your Buyer 

Before selling your LLC, clarify what exactly your buyer is interested in purchasing. They may want to purchase the entire company or just a few specific assets. During the negotiation stage, review all the sale details, such as the sale price and any contingencies or conditions for completing the transaction.

4. Draft a Buy-Sell Agreement with the New Buyer

After you’ve determined what exactly the buyer wants to purchase and you’re on the same page, it’s time to draw up a buy-sell agreement that outlines all the specifics of the sale, including: 

• What’s being sold

• The timeline

• Any other relevant details? 

All the LLC members with an ownership stake in the business need to agree to the terms of the sale.

5. Record the Ownership Change

After the sale is finalized, inform the appropriate state agency responsible for business registration of the change in ownership. 

It’s worth noting that some states do not permit the transfer of ownership, in which case you would be required to dissolve your LLC.

The buyer would then have to create a new one, and any assets would be transferred between the two companies in accordance with the terms of the buy-sell agreement.

6. Update the Necessary Documents

You’ll need to update all the necessary documents to reflect the change in ownership. These may include your business licenses, permits, tax filings, bank accounts, and insurance policies, among others.

Basically, you want to ensure that everything is up-to-date and accurate with the new owner’s information. This may take some time and effort, but it’s an important step to ensure a smooth ownership transition.

7. Notify Relevant Parties

After selling an LLC, you’ll need to notify all relevant parties about the change in ownership. Here are some of the parties you should consider notifying:

The Internal Revenue Service (IRS)

Notify the IRS of your LLC’s ownership change by filing Form 8822-B, Change of Address or Responsible Party – Business. If you sold the assets of your LLC, you may also need to report the sale on Form 4797, Sales of Business Property, which is used to report the sale of business assets and calculate any gain or loss on the sale.

Registered Agent

You should notify your Registered Agent of the change in ownership. Your Registered Agent is the person or company designated to receive legal documents and other important communications on behalf of your LLC.

You can typically update your Registered Agent information by filing a form with your state’s business registration agency.

States Where the LLC is Registered as a Foreign LLC

If your LLC is registered as a foreign LLC in other states, you should also notify those states of the change in ownership. You can typically do this by filing a form with each state’s business registration agency.

Financial Institutions such as Banks

Notify any financial institutions that your LLC does business with, such as banks or credit card companies, of the change in ownership. You may need to provide documentation, such as the buy-sell agreement, to show that the ownership change is legitimate.

Other Relevant Parties

Depending on the agreements in place with them, consider whether other parties, such as suppliers, partners, lenders, distributors, and others, need to be notified of the change in ownership.

It’s always best to review all contracts and agreements to determine if any notifications are required and ensure that they are carried out promptly and appropriately.

Things to Keep in Mind While Transferring Ownership of LLC

Transferring ownership of an LLC can be a complex process, and there are a few key things to keep in mind to avoid potential issues. Here are three problems you may encounter and ways to resolve them:

Disputes among LLC members

When transferring ownership, it’s essential to ensure that all LLC members agree on the terms of the sale.

Disagreements can slow down the process or even prevent it from happening altogether.

To resolve this, it’s best to work out any issues directly with the other members.

If this isn’t possible, consider bringing in a mediator or attorney to help resolve the dispute.

Failure to Update Necessary Documents

After transferring ownership, it is crucial to update the necessary documents, such as the Articles of Organization and Operating Agreement.

Failure to do so can confuse the new ownership structure and lead to legal and financial problems later.

To avoid this, make sure to update all relevant documents and notify all necessary parties of the ownership change.

Tax and Financial Implications

Transferring ownership can have significant tax and financial implications. For example, you may need to pay capital gains taxes when selling your ownership stake.

Understanding these implications and planning accordingly is essential. Consider consulting a tax professional or financial advisor to ensure that you’re fully aware of all the potential financial ramifications and can make informed decisions about the sale.

doola for a Smooth Transition

Transferring ownership of an LLC requires following the steps we mentioned, along with some planning and attention to detail.

It may seem like a lot, but it’s manageable with the right guidance and support. That’s where doola comes in.

doola can help you with all your business formation and compliance needs so you can transfer the ownership of your LLC without any hassle.

Our bookkeeping solution also automates administrative tasks to ensure accurate record-keeping, making the transfer of ownership smoother and less stressful.

So, if you’re considering transferring your LLC ownership, don’t hesitate to reach out to doola. 

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