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Category: business partners

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 5, Filings With The Secretary Of State

Posted on April 29, 2024July 9, 2024 by g83js92js91
Categories: Business Law & Contracts, business owners, business partners, limited liability company, llc

bigstock Businessman And Businesswoman 471976647

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?” Of course, you can also have a situation in which a current Member is only transferring or selling some of that Member’s interests in the company.

This Part 5 of our ongoing series focuses on the filings that can or should be made with the Secretary of State as a result of a change in ownership / membership. See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process, Part 2 for more information on the Purchase and Sale Agreement / Membership Interest Transfer Agreement, Part 3 regarding “Resolution” which should be a part of the membership interest (ownership) transfer process, and Part 4 for important information about Operating Agreement issues.

A transfer of membership / ownership interests in an LLC can, and sometimes should, result in new filings with the Secretary of State. The most common change, but not necessarily the only one, would be made by filing an Amendment to Articles of Organization. That Amendment could identify the changes in ownership structure. Similar information would be contained in the next-filed Annual Report, at least in states like North Carolina which require your typical limited liability company to file such reports.

Whether such an Amendment to Articles of Organization should be filed – and what exactly it should say – will depend on each specific circumstance. An Amendment document on file with the Secretary of State would be evidence of what information the Amendment contains.

An example of another appropriate filing with the Secretary of State would be for the LLC’s Registered Agent. (Click here for an explanation of Registered Agents.) If the Registered Agent has been an outgoing LLC Member, it would almost certainly be preferable to change the identity of the Registered Agent. That change is made by filing documentation with the Secretary of State, and of course the new Registered Agent (which could be our law firm, if the company is located in the Carolinas) has to have given permission.

These sorts of LLC filings are commonly worked on by business law attorneys. However, attorneys need to pay attention and have their brains and skill sets engaged even when performing straightforward work. Paying attention gets the best results for clients, which is what we do here at McGrath & Spielberger.

If you’d like assistance with business compliance services, please click here: https://mcgrathspielberger.com/business-compliance-services/.

Posted in Business Law & Contracts, business owners, business partners, limited liability company, llc

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 4, Operating Agreement (“OA”) Changes

Posted on April 22, 2024July 9, 2024 by g83js92js91
Categories: Business Law & Contracts, business owners, business partners, limited liability company, operating agreement, series

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?” Of course, you can also have a situation in which a current Member is only transferring or selling some of that Member’s interests in the company.

bigstock Business Man Signing A Contrac 262517662

This Part 4 of our ongoing series focuses on Operating Agreement amendments and/or similar changes as a result of a change in ownership / membership. See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process, Part 2 for more information on the Purchase and Sale Agreement / Membership Interest Transfer Agreement, and Part 3 regarding “Resolution” which should be a part of the membership interest (ownership) transfer process.

A transfer of membership / ownership interests in an LLC should result in amending the Operating Agreement (shorthand = “OR”) or the creation and execution of a new Operating Agreement. We’ll now address 3 different common scenarios, and keep in mind these are brief summaries, they are not intended to be a detailed or comprehensive listing of all relevant or necessary items / issues.

  1. AMENDING THE WRITTEN OPERATING AGREEMENT. If there is a written, executed OA in place of reasonable quality, then an amendment document can be utilized. The Amendment to OA would at least summarize the situation and the changes, reference other key documents, be dated, and be executed by the LLC itself and each individual Member (including any new Members and any outgoing Members).
  2. REPLACING AN EXISTING OPERATING AGREEMENT. There are times when replacing a past-written OA with a new one makes the most sense, including when there is a change in ownership. We’ll address this in more detail in a separate article.
  3. CREATING THE COMPANY’S FIRST WRITTEN OPERATING AGREEMENT. Many LLCs do not have a written OA. In nearly every instance, the creation and execution of a written OA should take place in light of the change in ownership structure. Interestingly, depending on the circumstances and applicable strategical goals, sometimes it makes sense for that OA to come into existence: before the change in membership (which may then also require an Amendment to OA as discussed above); or concurrent with the change in membership; or after the change in membership. We may address those timing options, and why each could make sense, in a different article.

An Amendment to Operating Agreement is often 1 or 2 pages long. An entire Operating Agreement is typically between 10 and 50 pages long. Yes, you correctly infer that there is a wide variety as to how complex and detailed Operating Agreements can be.

An LLC Operating Agreement is typically a private document vs. something which gets “filed” with anyone. This doesn’t mean it is forever confidential, it’s just internal. The contents of an LLC OA could be agreed to be confidential by the parties, although that also does not guarantee it will never be seen by outside persons or entities.

The law does not require an LLC OA to be notarized or witnessed by any third parties. In concept, there could be a requirement within a certain limited liability company which does require it – but that would be uncommon.

The LLC OA – including any properly agreed upon amendments – are typically part of the formal proof of the issues covered in the OA. This means that membership / ownership listings (including changes) in such documents are excellent proof of who owns how much. Anyone who is a signor to an OA or related Amendment should have a tough time later claiming to be unaware of the content of such documents or to deny that they agreed to the content.

LLC Operating Agreements and their Amendments are commonly worked on by business law attorneys. However, attorneys need to pay attention and have their brains and skill sets engaged even when performing straightforward work. Paying attention gets the best results for clients, which is what we do here at McGrath & Spielberger.

Posted in Business Law & Contracts, business owners, business partners, limited liability company, operating agreement, series

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs (Part 2)

Posted on March 4, 2024March 4, 2024 by g83js92js91
Categories: Business Law & Contracts, business owners, business partners, limited liability company, llc

The Purchase / Sale / Transfer Agreement Itself

Big Large White And Black Sign On Brick Wall Under New Managemen

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?” Of course, you can also have a situation in which a current Member is only transferring or selling some of that Member’s interests in the company.

See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process. This Part 2 focuses on the contract between the parties involved in the transaction, typically the Seller (Transferor) and the Buyer (Transferee), with the limited liability company itself often being a party to the agreement as well.

The agreement between the parties involved in the transaction is often called the “Membership Interest Transfer Agreement” or “Membership Interest Purchase and Sale 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.

Is this business contract a private document or does it become a public record? Typically, a Membership Interest Purchase and Sale Agreement is a private document and does not get “filed” or “recorded” anywhere. That doesn’t mean it can’t be ordered produced by a court, and of course there are other situations in which it must be or should be produced to certain government agencies or other private third parties.

What are the goals and purposes of a Membership Interest Transfer Agreement? There are many, and to some extent they will vary from situation to situation. The most common, most fundamental goal and purpose is to set forth in specific, clear detail what the

Here are some key issues which should definitely be covered in a Membership Interest Purchase and Sale Agreement, and of course this is not a complete list.

  • The full names of the parties; the full name of the LLC should be listed even if the LLC is not a party.
  • The date the transaction is effective.
  • The ownership structure before the transaction and what it will be after the transaction.
  • What items of value are being exchanged between the transacting parties (most often, Member A is selling ____% of the company’s membership interests in exchange for $_____).
  • What responsibilities / liabilities each of the parties has and doesn’t have as a result of the transaction, and the timing of the same.
    ○  For example, if Member A is selling all Member A’s interests, does Member A retain any responsibility or liability after the date of the transaction?
    ○  What happens if the new Member is subjected to negative consequences related to a new legal claim for events which occurred before becoming a Member, especially if Member A helped cause the claim?)
  • That the transaction has been approved, to the extent necessary, by other Members and/or the limited liability company itself.
  • Signatures of the parties (and sometimes of relevant other persons or entities).

We also point out that there are arguments to be made that the selling / transferring Member’s spouse (if there is one) should join in the Membership Interest Purchase and Sale Agreement.

Finally, we observe that if it’s a purchase / sale situation and the selling Member is not receiving all the purchase price up front, there are additional important items to add to the Membership Interest and Purchase Agreement and the use of a well-qualified attorney becomes even more important.

Look for more parts of this series to come!

Posted in Business Law & Contracts, business owners, business partners, limited liability company, llc

North Carolina LLC Partners – Fiduciary Duty

Posted on January 13, 2012 by g83js92js91
Categories: attorney, Business Law & Contracts, business partners, Charlotte, lawyer, limited liability company, llc, members, North Carolina, raleigh
Does My NC LLC Partner Owe Me a Fiduciary Duty?

In this short video blog, Attorney Jason A. McGrath discusses whether a partner (member) in a North Carolina limited liability company (LLC) owes a fiduciary duty to other partners (members). This is one of the more common questions that Mr. McGrath is asked by his business law clients. See the video below, or click here to view in You Tube.

Posted in attorney, Business Law & Contracts, business partners, Charlotte, lawyer, limited liability company, llc, members, North Carolina, raleigh

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Recent Posts

  • Business Ownership Deals (Part 6 of Series): How Many Different Attorneys Need To Be Involved?
  • Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 5, Filings With The Secretary Of State
  • Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 4, Operating Agreement (“OA”) Changes
  • Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 3, The Company Resolution
  • Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs (Part 2)

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