How to Sell the Equity Position in an LLC

by Phil M. Fowler

An equity position in a limited liability company (LLC), is a position of ownership in the company. Selling the equity position in an LLC is therefore a matter of creating a new membership interest in the company. The new owner of the equity position will be a new owner, or member, of the LLC. You can sell your equity in the LLC as long as the LLC Operating Agreement allows you to do so.

Identify your current membership interest in the LLC. When you acquired your interest in the LLC you should have received a membership certificate identifying the interest owned by you. If you don't have your membership certificate you will need to review the Articles of Organization files with the appropriate state agency.

Draft a membership, or equity, purchase agreement. This agreement will identify the amount that the new LLC member will pay to you in order to acquire your membership or equity interest in the LLC.

Arrange for the equity purchaser to place the purchase price in an escrow account, with release of funds contingent upon delivery of the LLC membership certificate and assignment to the purchaser.

Prepare a new membership certificate identifying the equity purchaser as a new member of the LLC. The membership certificate should state the ownership percentage belonging to the equity purchaser.

Draft an assignment of membership interest, which you will sign, conveying your equity position in the LLC to the purchaser. The assignment will accompany the LLC membership certificate to properly document the purchaser's new interest in the LLC.

Deliver the membership certificate and assignment to the equity purchaser.

Retrieve your purchase price from the escrow account.

Tip

  • An equity position in an LLC is any membership interest that has value. You can assign any portion of your LLC membership, or ownership, interest to an equity purchaser. Keep in mind that if you sell more than 50% of the equity position then you will lose control over your company.

Warning

  • If your LLC does not have an operating agreement, it would be a good idea to get one in place before you sell your equity in the LLC. Or, if you have an operating agreement, review it carefully before you assign your equity position to a purchaser. The operating agreement will spell out who gets paid, and when, from the revenues of the company. If necessary, amend your operating agreement to contain terms that will be most favorable to you once you take on a new co-owner.

Items you will need

  • LLC membership certificate

References

  • "Legal Guide for Starting & Running a Small Business"; Fred Steingold; 2011

Photo Credits

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