The “owners” of a Limited Liability Company are traditionally referred to by attorneys as the LLC’s “Members”. It’s important to realize that (with some variation from state to state) there can be “Members” but also what may be referred to as “Economic Interest Owners”, and those are not the same thing. However, for the rest of this article and related articles, we’re just going to use the terms “Member” and “Owner” as synonyms, and Owner is going to mean someone who has full rights in the Company (mainly meaning having voting and economic rights).
A very common question we get asked at our law firm of McGrath and Spielberger is “What do I need to do to add an owner to my company?” The answer to that exact question is similar to the related question of “How do we transfer the ownership interests of a Member who is leaving the LLC?”
We’ll discuss which of these documents are public records filed with the Secretary of State vs. private records in a different article.
Whether you’re selling part of your LLC in North Carolina, buying into a limited liability company in South Carolina, or transferring membership to a family member in Tennessee, the steps are going to be similar. Of course, this article is not specific legal advice and you need to consult an attorney about the specifics of your situation.
- The agreement between the parties involved in the transaction. This might be called the “Membership Interest Transfer Agreement” or “Membership Interest Sale and Purchase Agreement” and states the terms of the agreement between the parties transferring ownership interests amongst each other. It’s important to note that the LLC itself may also want to be or need to be a party to such agreements.
- The LLC resolution. For key issues and situations, limited liability companies should generally hold votes or otherwise make decisions according to the law and the Operating Agreement and memorialize (record in writing) the issue and the outcome. In other words, what was decided / approved, if anything? An LLC decision to approve the transfer of ownership interests should be memorialized in a document called a “Resolution”.
- Operating Agreement: amendment or new agreement entirely? The changes in the LLC’s ownership structure should result in the Operating Agreement being formally amended. Sometimes the company doesn’t have a written Operating Agreement, meaning one needs to be created. In certain other instances, a change in membership structure for the limited liability company could or should result in a brand new Operating Agreement even when there was a written one in existence.
- Filings with Secretary of State. Some changes in company ownership will require new, updated, or different documents to be filed with the Secretary of State. Other instances should trigger such documents.
- IRS filings. We aren’t going to attempt to get into the many twists and turns of when changes in an LLC’s ownership may require X, Y, and/or Z changes with the IRS – just be aware that could need to occur.
- Beneficial Ownership Information Report filings / compliance with the Corporate Transparency Act. This article is not going to delve into this issue in any detail, although others will. Just be aware that changes to LLC ownership could require (updated) Beneficial Ownership Information Report filings.
This is not necessarily an all inclusive list; the more complex the ownership structure is and/or the more complex the changes are, the more likely there would be additional formal steps to take.
Also keep in mind the many business-oriented and practical changes and updates which can be required because of a change in ownership structure.
Other interesting questions related to business owner deals are “Can (or should) just 1 attorney do all this work? Does each party involved in the deal need their own lawyer? Can the attorney represent the LLC and also give advice to individual members?” We’ll address those sorts of issues in a different article.
Most experienced business law attorneys can handle this sort of work. It’s not always that complicated from an attorney perspective, but it takes time and dedicated effort, and the attorney needs to keep the brain engaged instead of lapsing into cruise control. Paying close attention helps the client get the best results.