Limited liability companies (LLC) are a common type of business structure. If you’re thinking about going into business, you may be drawn to the LLC’s advantages, like its tax structure and personal liability protection. Yet it’s also important for you to know how to transfer ownership of an LLC in Kansas. It’s a situation that is likely to come up at some point.
Although LLCs have several benefits that corporations don’t, transferring LLC ownership in Kansas is more difficult than transferring corporation ownership.
The primary reason that transferring LLC ownership is harder is because of how an LLC is owned compared to a corporation. Corporation ownership is vested in shares of stock, and it’s easy for anyone to buy or sell shares of stock. By contrast, an LLC’s ownership is vested in its individual members rather than their stock shares. On top of that, LLC ownership rights aren’t freely transferable. Instead, all the LLC members typically have to agree to an LLC transfer of ownership.
Finally, many LLCs lack documentation that lays out the necessary formalities to transfer ownership, making LLC transfers of ownership even harder. Having a formal Operating Agreement for your LLC can help simplify things.
If you’re thinking about forming an LLC in Kansas, it’s important to think about your goals and priorities and plan ahead for changes in the future.
First Things First: Kansas Operating Agreements
Operating agreements (OAs) are essential documentation for any LLC owner to have. These agreements can address an LLC’s operating procedures, ownership structure, and many other topics. Unlike some states, Kansas does not require that LLCs draft an OA before they form. However, you may want to strongly consider drafting a comprehensive OA before you start your LLC.
If your LLC does have an operating agreement, transferring your LLC ownership in Kansas will be easier. That’s because a good OA will have a detailed transfer procedure, and you can simply follow the OA’s instructions.
Things get more complicated if your LLC doesn’t have an OA. Instead of following a document that you and the other LLC members agreed to, you’ll have to abide by the default laws of Kansas.
That’s why it’s a good idea to draft an OA whether or not your jurisdiction requires it. Fortunately, you don’t need to hassle with hiring an attorney to draft an OA. Instead, you can use ZenBusiness’s operating agreement template to help you get your Kansas-based LLC off the ground.
In Kansas, there are two ways to transfer your LLC interest without legally dissolving the business: a partial transfer and a full transfer.
Partial Transfer in Kansas: The Buyout Provision
Partial transfers occur when a departing LLC member sells their share to other LLC members or a third party. However, you need to have a buy/sell agreement before you do a partial transfer. A buy/sell agreement doesn’t have to be complicated. Its primary purpose is to serve as a written record of the partial transfer.
If your LLC has an OA that establishes a clear process for partial transfers, then you won’t have too many difficulties drafting and using a buy/sell agreement. But even if your LLC doesn’t have an OA, you can prepare a standalone buy/sell agreement.
That said, if you want a smooth ownership transfer, your best option is to draft a comprehensive OA before forming your Kansas LLC. This allows members to agree on a process that protects their rights and simplifies partial transfers. You’ll also reduce the risk of any unpleasant in-fighting with your fellow LLC members over the partial transfer.
Full transfer: Selling Your Kansas LLC
The other way to transfer LLC ownership in Kansa is with a full transfer. A full transfer happens when a third party buys the whole LLC.
As with partial transfers, the best way to help a full transfer go smoothly is to have an OA that establishes procedures ahead of time. However, unlike a partial transfer, which just requires the agreement of the involved LLC members, a full transfer typically requires the agreement of every LLC member.
Other Possible Issues
LLC transfers of ownership can also come up in these situations:
Death of a Member
When a Kansas LLC member dies, their spouse or children generally inherit their interest via their will or through probate. However, recipients of this LLC interest don’t inherit the full spectrum of rights that come with LLC ownership. Typically, their interest only extends to receiving a percentage of the LLC’s profits. They usually can’t exercise any voting rights that the former member possessed unless the other LLC members agree to grant them a membership interest.
As a result, the best course of action after an LLC member dies is usually for the remaining members to buy out their interest from their next of kin or estate.
Dissolution and Reformation
Even partial transfers can quickly become complicated when multiple members want to leave the LLC at the same time. If you find yourself in this situation, one remedy is to have all the LLC members agree to dissolve your Kansas LLC.
Once the old LLC dissolves, a group of the former LLC’s members can immediately reform the LLC. The major advantage of this strategy is that it allows multiple LLC members the opportunity to leave at once with relatively little paperwork. It also gives other individuals a chance to become new LLC members.
File proper change of ownership paperwork in Kansas
Kansas requires LLC members to file notice of membership changes with the Secretary of State. You can find the right forms on their website.
Rely on ZenBusiness Tools to Prepare Your Kansas LLC for the Future
There’s no doubt that LLCs have many advantages, but an LLC transfer of ownership can also get really messy. Because a good Operating Agreement will make LLC ownership transfers easier, consider using ZenBusiness’s operating agreement template to draft a comprehensive OA for your LLC.
If you’re looking to form your LLC or need help with legal compliance, ZenBusiness has your back. Check out our full slate of formation and compliance services to see how we can help your business thrive.
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 LLC?
Yes. You can sell your interest in an LLC, either through instructions set out in your operating agreement, or by following Kansas’s default LLC laws.
Can an LLC issue new membership interests?
Yes, unless the operating agreement states otherwise. Kansas allows LLCs to freely assign LLC interests, although these interests likely won’t include the right to control the LLC’s operations unless the OA says otherwise.
How do I change ownership of an LLC with the IRS?
To notify the IRS of an LLC ownership change, you must file a Form 8822-B. You will need to file this form within 60 days of the ownership change. If the change in ownership will result in the LLC changing into a single-member LLC, you must file a Form 8832.
Can an LLC member have no ownership interest?
LLC ownership rights are vested in members. However, Kansas law separates the ownership rights that come with LLC membership from the right to share in the profits of the LLC. You can have the right to receive a share of profits without being a member, and vice versa.