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How to Transfer Ownership of an LLC in 7 Steps

By Jeannine Mancini

Published on 17 May 2023 6 min read

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 transferring control of your business is something you can do on your own. 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, it can keep chugging along like nothing happened with a simple transfer of ownership. 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. Given below are seven steps that 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’ll need to decide how much of the LLC you’re selling. Discussed below are the details about the two kinds of LLC ownership transfer.

Partial Transfer of LLC Ownership

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

Full Transfer of LLC Ownership

When you sell the whole LLC, you’re transferring ownership of everything that comes with it, including assets, debts, contracts, and obligations. This makes the process a tad 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 good to go. 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, go over all the details of the sale, 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. This may include things like your business licenses, permits, tax filings, bank accounts, and insurance policies, among others. Basically, you want to make sure that everything is up-to-date and accurate with the new owner’s information. This may take a bit of time and effort, but it’s an important step to ensure a smooth transition of ownership.

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 a change in ownership of your LLC, 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

Consider whether other parties need to be notified of the change in ownership, such as suppliers, partners, lenders, distributors, and others, depending on the agreements in place with them. It’s always best to review all contracts and agreements to determine if any notifications are required and ensure that they are carried out in a timely and appropriate manner.

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 members of the LLC agree on the terms of the sale. If there are disagreements, it can slow down the process or even prevent it from happening altogether. To resolve this, it’s best to try to work out any issues with the other members directly. If this isn’t possible, consider bringing in a mediator or attorney to help resolve the dispute.

Failure to update necessary documents: Updating the necessary documents, such as the Articles of Organization and Operating Agreement, is crucial after transferring ownership. Failure to do so can result in confusion about 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 on the sale of your ownership stake. It’s essential to understand these implications and plan accordingly. 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 with the right guidance and support, it’s manageable. That’s where doola bookkeeping comes in. doola can help you with all your bookkeeping needs, ensuring accurate records that can make the transfer of ownership smooth and less stressful. So, if you’re thinking about transferring ownership of your LLC, don’t hesitate to reach out to doola. 

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