Transferring your LLC ownership in Indiana isn’t so simple. In fact, it’s much more complicated than transferring an ownership interest in a corporation.
Corporate ownership interests are created through stocks, which are freely transferable by buying and selling the stocks. LLC ownership interests, on the other hand, are vested in the LLC members, and to transfer those interests, all LLC members must consent. Further, LLCs lack the formalities that corporations have, making the sale or transfer of an LLC interest a bit more difficult. If you do wish to form an Indiana LLC, we have what you need to start the process.
Let’s walk through how to transfer ownership of an LLC in Indiana.
First Things First: Indiana Operating Agreements
An operating agreement (OA) is a document that describes how the company will run. The contents of a detailed and comprehensive OA typically include provisions addressing the following:
- Management of the LLC (member-managed or manager-managed)
- Roles and responsibilities of the members
- Profit and loss sharing
- Rights to assign membership interests
- Voting rights;
- Tax classification
- Events that will trigger dissolution of the LLC
Some jurisdictions require an OA at formation, but many don’t, including Indiana. But even though it’s not legally required, an operating agreement needs to be an essential component of your LLC formation. We provide operating agreement templates to support your Indiana LLC.
The LLC’s OA typically includes provisions about how to handle the LLC transfer of ownership. If the LLC doesn’t have an OA, then the sale/transfer defaults to Indiana law.
If you want to transfer LLC ownership in Indiana but don’t want to legally dissolve the LLC, you have two options: a partial sale/transfer (also known as a buyout) or a full entity sale.
Partial Transfer in Indiana: The Buyout Provision
In a buyout transaction, the LLC members make a deal to purchase the ownership interest of the member who wants out of the LLC, and then they divide that interest among themselves. To facilitate this transaction, you need to create a buy/sell agreement (also known as a buyout agreement). This is a legally binding contract between the LLC members that details how a member’s interest in the LLC is to be sold to the other members of the LLC.
Most OAs have instructions on how to structure the buy/sell transaction. The purpose of buy/sell provisions in the OA is to restrict the members ability to transfer their interests to whomever they want.
The best way to avoid conflicts between LLC members and give them equal opportunity to assert their rights within the LLC as a whole is to adopt a thorough OA.
Full Transfer: Selling Your Indiana LLC
The second option you have to transfer an Indiana LLC interest is a sale of the entire LLC as an entity to a third party. The buyer may want to purchase the entire business or just the LLC’s assets.
Again, the OA is the first place to look when selling the LLC. If there is no OA, Indiana law provides default provisions.
When considering the sale of an entire LLC, you may want to hire a lawyer since these are incredibly complex transactions. To protect yourself, you want to be sure the sale is done correctly.
Other Possible Issues
Death of a member
When an LLC member dies, that ownership interest passes on to his or her spouse and/or children. However, only the deceased member’s profit and loss interest passes on. The person inheriting the LLC interest doesn’t have any right to assert a management interest in the LLC.
In this situation, the remaining LLC members will typically purchase the deceased’s transferred interest through a partial transfer, as explained above.
Sometimes a partial transfer is more complicated than it’s worth to achieve the desired goal. For example, if multiple members want to transfer their interests, it could be a headache to go through multiple partial transfers. In that event, a total dissolution of the LLC may be the best option. Dissolving the LLC and forming a new one allows members who want out the opportunity to take their investment and leave, as well as allow new members to join the business venture.
File proper change of ownership paperwork in Indiana
If you do change the ownership interests of your Indiana LLC, you will need to file Articles of Amendment with the Indiana Secretary of State.
Transferring LLC ownership interests isn’t always straightforward. Having a comprehensive OA is key to making the transition of ownership smooth. For help with your Indiana LLC’s OA, check out our customizable templates that include everything you need to protect your business and comply with Indiana law.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- Can I sell my interest in an Indiana LLC?
Yes, LLC members may sell their interest in an Indiana LLC. Look to the LLC’s OA for any requirements involving the sale. If there is no OA, Indiana law permits LLC members to assign their interests.
- Can an Indiana LLC issue new membership interests?
Yes, an Indiana LLC may issue new members interests in accordance with the terms of the OA. If there is no OA, then under Indiana law, all members must agree to the new membership interest.
- How do I change ownership of an Indiana LLC with the IRS?
You don’t need to notify the IRS of any ownership changes that take place within the LLC. The only time you need to update your information with the IRS is if you’re changing the tax classification of the LLC or dissolving the LLC altogether.
- Can an Indiana LLC member have no ownership interest?
No, all Indiana LLC members have an ownership interest, even if they don’t participate in the business’s activities.