You have ownership in a business, but you don’t want to be involved in the business anymore. Or, maybe you want to assign the distributions you receive from an LLC to payoff a debt. Can’t you simply just transfer your ownership to someone else without having to go through a lengthy, legal process?
Time to check your Operating Agreement
As you might have guessed, the short answer is, “It depends.” The answer will come down almost entirely to what is stated in your Operating Agreement; which is just another reason why it is so important to have a well-drafted Operating Agreement from the get-go. If your Operating Agreement does not address transferring membership, or if you do not have an Operating Agreement, then the default is what the statute says. Interest in LLCs are generally transferable in New Mexico, so whether you can assign interest will depend on what is in your Operating Agreement. Unless your Operating Agreement prohibits interest transfers, then the transfer of your interest in a business to anyone of your choosing may be legitimate. Barring language in the Operating Agreement saying otherwise, assignees are entitled to only the distributions and returns which the original assigning member would have been entitled to. Assignees do not automatically become members unless that is how the Operating Agreement is written. Assignees can only become members by the other members’ unanimous consent, or by some other way specified in the Operating Agreement. What this means is that as far as the LLC is concerned, whomever you assign your ownership to will receive the same distributions from the LLC that you did, but they will not necessarily automatically become a member of the LLC. It should also be noted that if there are any liabilities associated with the LLC, you are not necessarily off the hook simply because you transferred your interest.
Perhaps the easiest way to get out of your ownership interest in an LLC is to simply ask the other members to purchase your share of ownership back from you. You will probably want to closely review the operating documents for your LLC with a lawyer to determine how members are created and whether interests can be assigned. An attorney can also assist you with the negotiation and paperwork should you for any reason need to sell your ownership or amend the Operating Agreement for the LLC.
Does your Operating Agreement consider transfer of ownership by the members?
Do you want to leave an LLC?
Would you like to buy out the interests of a fellow member of your LLC?
Give us a call today at 505.848.8581. We can help.
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