Transferring ownership isn’t an uncommon business move, but it’s also not simple to achieve. Unlike a corporation with stock that can be freely bought or sold, limited liability companies (LLCs) operate differently. Transferring LLC ownership in Idaho will change the percentage of ownership interest in the company for members or allow the potential addition of new members. Because members are vested in the business and how it operates, free exchange of ownership would be detrimental. This means there are some hoops to jump through.
We’re here to help you learn a little more about how to transfer LLC ownership in Idaho and how it impacts your company. If you are just starting out, you can also look to our ZenBusiness LLC formation tools and services for guidance.
First Things First: Idaho Operating Agreements (OA)
One of the most important things you can do to ease the pains of transferring LLC ownership is to have a detailed operating agreement. Members will typically draft and agree upon this document during the business formation process, but they can also amend it along the way.
The purpose of an operating agreement is to control the internal operations of the LLC in a way that suits the needs of the business and is agreeable to all owners. This is an official, binding document. Some of the areas that your operating agreement will need to cover include:
- Ownership percentages
- Roles of members and managers
- Voting rights and procedures
- Profit and loss distribution
- Frequency of meetings
- How to handle conflicts between members
- Procedures for transferring interest
- Buy/sell rules
Your first go-to when determining how to transfer LLC ownership in Idaho will be to check your operating agreement. A well-thought-out operating agreement is crucial to the organization and success of your LLC. If you don’t have one, ZenBusiness’s operating agreement template can help. If you don’t have transfer provisions in your OA, you will need to refer to Idaho LLC law.
According to Idaho law, LLC transfers are allowed and don’t cause dissolution of the business on their own. However, the person receiving the interest doesn’t automatically become a member. In other words, they won’t have an ownership interest or the rights that come with it, such as the right to participate in management of the company or have access to company records. Their interest will be limited to receiving distributions from the LLC. However, if the person does become a member — by obtaining approval from the other members, for example — they will take upon themselves the same obligations that the transferring owner was responsible for.
Types of Idaho LLC Ownership Transfers
If there are no transfer provisions in the operating agreement, some states require an LLC to dissolve when a member leaves the company. There are a number of things that could cause involuntary dissolution, but generally a full or partial transfer won’t dissolve your Idaho LLC. If you have concerns about how your transfer will impact the LLC, you may want to speak to a business law attorney.
A partial transfer occurs when a member transfers their ownership interest to someone else or the other members of the LLC purchase the interest and split it among themselves. Any time you transfer an ownership interest in an LLC, there must be an official certificate of transfer. New members will need to be recorded on the company’s annual report, which is filed with the Idaho Secretary of State. Sometimes agreeing on the execution of a transfer can cause controversy among members. Having a detailed OA is the best way to avoid disagreements.
A full transfer is when the entire LLC is sold to a new buyer. The buyer could purchase the entire business or just its assets. Selling your LLC is even more complex than a transfer and requires the consent of all members. Because of the complexity, you may want to hire an attorney to make sure it’s done properly.
Other Possible Issues with Transfers of LLC Ownership in Idaho
There are other ways that the structure of your LLC can change intentionally or unintentionally, and it’s important to be aware of these situations.
Death of a Member
When a member of an LLC dies, their interest in receiving distributions from the LLC passes to their spouse or children. Their ownership interest doesn’t pass. Usually, the other members of the LLC will choose to buy out the deceased’s interest from their heirs.
Transferring LLC ownership is a valid course of action in a lot of situations. But sometimes it’s simpler and more beneficial to dissolve the existing LLC and form a new one. You will need to conduct the “winding up” process once all members have agreed to dissolve the corporation. This includes clearing up debts, paying out interests, and more. If you do not officially dissolve the LLC, the company will still be responsible for recurring fees and penalties.
File proper change of ownership paperwork in Idaho
Partial transfers require that the changes are reflected on the next annual report submitted by the LLC. It’s important that all information on your annual report is accurate. ZenBusiness has tools and services to help you with the annual report process.
If you choose to dissolve your LLC, you will need to file a Statement of Dissolution with the state.
Keys to Transfer LLC Ownership in Idaho
The most important thing you can do to streamline the LLC ownership process is to have a detailed operating agreement. Having everything spelled out will help minimize disputes and keep the business moving forward. Our operating agreement template can help you draft a thorough OA that checks all the boxes with important provisions.
If a conflict arises with other LLC members or buyers, you may want to consider seeking advice from an attorney familiar with business law.
- Can I sell my interest in an LLC?
An ownership interest in an LLC is transferable. It’s considered personal property of the owner according to Idaho Code § 30-25-501, but there are steps that must be taken to properly transfer this interest.
- Can an LLC issue new membership interests?
An LLC can issue new membership interests as long as it’s agreed upon by all the members. Unless it occurs as another member is departing, adding a new member will dilute the ownership interests of other members, so it’s important that everyone is on the same page.
- How do I change ownership of an LLC with the IRS?
You can notify the IRS of ownership changes using Form 8822-B.