How to Transfer LLC Ownership in New York

Giselle Ayala Mateus, Esq.

Having a share in an LLC (Limited Liability Company) can be a significant milestone in your professional journey. It signifies your essential role in a business and aligns your interests with the company’s success. However, life is full of unexpected changes, and your professional aspirations or personal circumstances may change. The possibility of eventually leaving the company may cross your mind. In such a scenario, it’s crucial to consider the implications and plan accordingly. This includes reviewing key documents like the LLC Operating Agreement and getting legal counsel from a Business Lawyer.

Exiting from an LLC can be complicated. It involves legal, financial, and emotional considerations, especially if you have played a key role in the company. Therefore, deciding to step away from an LLC requires careful thought, strategic planning, and a thorough understanding of the options for your graceful exit.

Are you thinking about starting an LLC in New York? We’ve got you covered with our New York LLC Formation Service. Now, let’s dive into transferring ownership of an LLC in New York.

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First Things First: The Operating Agreements

An operating agreement is a key document for an LLC. It is a set of rules that everyone in the LLC agrees to follow. Think of it as the game plan for how your business will run. This agreement covers many important things, like who owns what part of the company, how decisions are made, and what happens if someone wants to leave or join the LLC. Operating agreement can be easy to create when an LLC has only one member. However, a multimember LLC usually requires more complex language and strategic planning, here is when the role of a business lawyer can make a difference.

If you transfer your part of the LLC to someone else, the operating agreement becomes crucial because it outlines critical aspects of the transaction.

  1. Rules for Selling Your Share: The operating agreement usually has specific steps for selling your LLC participation. For example, it might say you have to offer it to the other members first before selling it to an outsider.
  2. Valuing Your Share: The Operating Agreement’s text can help determine how much your part of the company is worth. That way, you will know how much money you should get for your share.
  3. Protecting Everyone’s Interests: The Operating Agreement serves to protect all members’ interests. It ensures that the transfer is fair and doesn’t hurt the business or the other members.
  4. Avoiding Conflicts: Without clear rules, selling or transferring your LLC ownership participation could lead to arguments or even legal battles. The operating agreement helps avoid this by clearly laying out the process.
A well-written operating agreement will clearly explain the steps to sell or pass on your share of an LLC, but sometimes, this agreement might not cover everything, or an LLC might not have one at all. If that happens, you’ll need to follow the rules set by New York state law to figure out how to transfer your ownership. Thus, check the operating agreement first if you plan to transfer your participation in an LLC.
 

Second: Full or Partial Transfer of Ownership

Transferring ownership in a Limited Liability Company (LLC) can be done either partially or totally, and the implications of each are quite distinct:
Partial Transfer of Ownership
 
Transferring ownership in a Limited Liability Company (LLC) can be done either partially or totally, and the implications of each are quite distinct:
1. Retained Ownership: If you decide to transfer only a part of ownership in the LLC, you continue to have a stake in the LLC and retain some level of control and rights to profits, losses, and decision-making.
 
2. Control and Voting Rights: By partially transferring your ownership in the LLC, you may still participate in the management and decision-making processes, depending on the terms of the operating agreement, the term of the transaction, and the percentage of ownership retained.
 
3. Income and Liability: Another perk of a partial transfer is that you continue to share in the LLC’s profits, losses, and liabilities proportionally to your remaining ownership percentage.
 
4. Partnership Dynamics: New owners introduced through partial transfers may change the dynamics and relationships within the LLC.
Total Transfer of Ownership
 
1. Complete Exit: When you fully transfer your part of ownership in the LLC, you relinquish all your rights and interests, effectively ending your involvement.
2. No Control: Once the transfer is complete, you lose all control, voting rights, and say in the management of the LLC.
3. No Income or Liability: A total ownership transfer will also result in you no longer sharing in the LLC’s profits, losses, or liabilities. Any future financial or legal issues of the LLC will not affect you.
4. Severance from the business: By transferring all your ownership in your LLC, the new owner takes over your role entirely, potentially altering the strategic direction or operations of the LLC.

Third: Assignment is Different than Transfer

Depending on the context of the transaction, an assignment and a transfer may have different legal effects. According to New York Limited Liability Law Section 603, unless otherwise prohibited, an LLC member’s interest is freely transferable. However, the assignment only “[entitles] the assignee to receive […] the distributions and allocations of profits and losses to which the assignor would be entitled…” This means that more than an assignment is needed to transfer all the rights and privileges of an LLC member to another. To fully transfer an LLC member’s interest, you will need to document it properly, review the operating agreement, and ensure that the other LLC members oppose the transaction.

Now, How to Transfer Your New York LLC Interest

Now that we have explored the common issues surrounding the transfer of an LLC’s ownership interest, these are the basic steps you should follow to complete the transfer properly.

1. Check Your Operating Agreement: First, look at the Operating Agreement. This document should explain how you can sell your part of the LLC.

2. Get Approval from Members: Talk to the other members of the LLC. You will most likely need their agreement before you can move forward.

3. Value Your Ownership Stake: Determine the worth of your share of the LLC. This is crucial for legal, financial and tax purpose. A professional can help with this.

4. Find a Buyer: Once you know the value, look for someone to buy your part. This could be another member or someone outside the LLC. 

5. Follow New York State Law: Make sure you are following all the rules. New York also has laws about selling business parts, so check those, too.

6. Notify the State: Tell New York State or the Federal entities about the ownership change. You might need to fill out forms or pay fees.

GAM Law Office is here to help your New York LLC grow!

The transfer of LLC ownership in New York takes some leg work, but it can be smooth if you have a thorough Operating Agreement in place. If you need more information on how we can help you succeed, check out our full portfolio and compliance tools and services.
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