LLC Membership Purchase Agreement

What is an LLC membership purchase agreement?

An LLC membership purchase agreement is a document used when a member of a limited liability company (LLC) wishes to sell some or all of their interest in the LLC to another party. Most often, LLC membership purchase agreements are used when the member of the LLC is choosing to leave the LLC (or has been forcibly removed) and needs a way to dispose of the interest. LLC membership purchase agreements can be used for any situation where money is being exchanged for interest in an LLC.

What is the difference between an LLC membership purchase agreement and an LLC membership interest assignment?

Though both documents involve the transfer of interest in an LLC from one party to another, these two documents serve different purposes. The LLC membership interest assignment transfers the entirety of one person's interest in the LLC to another person. It is also not a sale document.

An LLC membership purchase agreement is the sale of some portion of a party's interest in an LLC to another party. For example, if someone owned 50% interest in an LLC, they could sell 25% of their interest in the LLC to another party and keep the remaining 25% interest for themselves.

Is it mandatory to use an LLC membership purchase agreement?

Yes, using an LLC membership purchase agreement is mandatory in most states. Though this document is not mandatory in California, Louisiana, and Georgia, it is still highly advisable to use this document to be sure to protect the interests of the parties involved and to make sure all the members of the LLC are informed about the ownership sale.

What is an "LLC"?

A limited liability company, also known as an LLC, is a corporate structure that protects its owners from being personally liable for debts and liabilities of the company. LLCs do not pay taxes on their profits directly. Instead, profits and losses are passed through to the individual members, who report them on their personal tax returns.

What is "membership interest"?

Membership interest is a party's ownership stake in an LLC. It represents the parties' right to share in the profits and losses of the LLC and to receive distributions from it.

What must an LLC membership purchase agreement contain?

A valid LLC membership purchase agreement must contain at least the following mandatory clauses:

• Identification of involved parties: The LLC membership purchase agreement will include details about the identity of both the party selling some or all of their interest, as well as the party who will be buying the interest in the LLC.
• Description of membership interest: The LLC membership purchase agreement includes details about the membership interest, including the percentage of the LLC and whether it includes voting rights.
• Sale details: The LLC membership purchase agreement specifies the percentage of the LLC that is being sold to a buyer. It then outlines the price of these shares and how the buyer will pay it.

In addition to the above mandatory clauses, the LLC membership purchase agreement may also include the following optional clause:

• Consent requirement: If needed, this document includes an addendum at the end specifying that all the members of the LLC consent to the sale of interest.

What are the prerequisites of an LLC membership purchase agreement?

Before creating an LLC membership purchase agreement, several things should happen. Firstly, the parties should review the LLC's operating agreement. This document may contain restrictions or requirements for the sale of interest in the LLC. For example, the operating agreement may require that existing members of the LLC have the right to buy the interest in the LLC before it is sold to any outside third party.

The parties to the agreement should also get consent to the sale from the current members of the LLC. This is not always necessary, but it is common and usually considered good practice.

Before agreeing to the terms of the LLC membership purchase agreement, the buyer should also do research into the LLC to be sure that it is in good standing and not involved in ongoing litigation or bankruptcy proceedings.

Who is involved in an LLC membership purchase agreement?

The LLC membership purchase agreement includes the party selling their interest in an LLC and the party buying the interest in the LLC. Both of these parties can either be individual people or entities, like a business or charitable organization.

What has to be done once the LLC membership purchase agreement is done?

Once the LLC membership purchase agreement is done, it should be signed and dated both the selling party and the buying party. All members of the LLC should be notified of the sale. This notification typically happens by providing a copy of the purchase agreement and any related documents to the LLC's registered agent or manager. Information about the process is typically specified in the LLC Operating Agreement.

In some states, sale of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization. The LLC should be sure to update its bank accounts, contracts, licenses, and permits as necessary to reflect the membership change. Finally, the LLC should maintain accurate records of the sale of interest, saving for future reference copies of the LLC membership purchase agreement, amended Operating Agreement, consent of members, and any other relevant documents.

Is it necessary to register the LLC membership purchase agreement?

In some states, the sale of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization.

Which laws are applicable to an LLC membership purchase agreement?

LLC membership purchase agreements are subject to the laws of individual states. There is no one federal law covering these documents because each individual state governs the businesses formed within that state.

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