Limited liability companies (LLC) are just one of many kinds of business entities that you can form when you decide to go into business.
But maybe you’ve already started an LLC and you’re thinking of moving on to other business opportunities. In that case, you’ll have to know how to transfer ownership of an LLC in Louisiana before you seek new pastures.
LLCs offer a lot of advantages over corporations, but transferring LLC ownership in Louisiana is more difficult than transferring ownership in a Louisiana corporation. The reason for this is that a corporation’s ownership is vested in shares of stock. Stock shares are easy to buy and sell, and you don’t need any special contracts or agreements.
On the other hand, an LLC’s ownership is vested in its members. As a result, ownership rights aren’t freely transferable unless the other members of the LLC agree. LLCs may also lack well-defined transfer procedures and formalities, which make an LLC transfer of ownership even harder.
If you think your situation might involve frequent changes of ownership, you’ll want to consider this drawback in deciding whether forming an LLC in Louisiana is the right option for you.
But for now, let’s look at the ways that LLC transfers of ownership can happen in Louisiana.
Operating Agreements (OAs) are the most essential documents for any LLC. OAs establish the procedures for an LLC to make a variety of critical business decisions. Covered topics in an OA include things like:
Because OAs are so important, some states require that every LLC submit an OA when they first form. Louisiana doesn’t require that LLCs submit an OA. However, it’s still a good idea for the owner (or owners) of the LLC to draft one to govern the LLC’s operations.
If your LLC has an OA, transferring your LLC ownership in Louisiana will be less complicated. You’ll just need to follow the transfer and sale provisions detailed in that OA. If your LLC doesn’t have an OA, then the situation gets more difficult. Specifically, you’ll have to follow whatever default process is set up by Louisiana. And that could lead to a less-than-ideal outcome.
The best thing you can do to avoid these headaches is to draft an OA even though Louisiana doesn’t require it. But you don’t have to do it by yourself. Use our operating agreement template to set up your Louisiana-based LLC for success.
In Louisiana, there are two ways to transfer your LLC interest without legally dissolving the business. The first is a partial sale, or buyout. The second is a full transfer.
A partial transfer happens when one or more departing LLC members allow other LLC members to buy their ownership interest. If multiple other LLC members purchase the departing member’s interest, the LLC members divide the ownership interest among themselves.
You need to have a buy/sell agreement before you do a partial transfer. A buy/sell agreement is just a contractual agreement that memorializes the sale of one member’s interest to another.
A partial transfer is easier if the LLC has an OA that discusses how to set up a partial transfer. If your LLC doesn’t have an OA, Louisiana allows independent buy/sell agreements. That said, if you want a smooth ownership transfer, your best option is to draft a comprehensive and detailed OA before the issue comes up. By having an OA in place, everyone involved with the transfer can rely on a previously agreed-upon process. In turn, that means there’s less chance of the LLC members getting into disputes about how to accomplish the transfer.
The other way to transfer LLC ownership is with a full transfer. A full transfer happens when a third party buys the whole LLC. Depending on the situation, the buyer of the LLC may want to continue operating the LLC or just acquire the LLC’s assets for their own reasons.
Just like with partial transfers, the best way to help a full transfer go smoothly is to have an OA that sets out the process in advance. Typically, a full transfer can occur only if every LLC member agrees to it.
Selling an LLC outright involves a lot more complexity than a partial transfer. Consequently, we recommend that you hire a qualified business attorney to help you make sure that you’re following Louisiana state law when you set up a full transfer.
There are a few other situations that can affect a transfer of ownership of an LLC in Louisiana.
When an LLC member dies, their LLC interest passes on to their heirs, often a spouse or children, depending on the situation and the laws of the state.
However, recipients of the LLC interest don’t enjoy the right to assert the former member’s management interest. Instead, their interest only carries the financial benefits of membership, like the right to a percentage of the LLC’s profits.
In many cases, your best option is to simply buy out the deceased member’s LLC interest from their next of kin.
A partial transfer can become overly complicated and stressful when multiple members want to leave the LLC at the same time. It can also get messy if there isn’t a pre-existing OA.
One way to handle this situation is to simply have all the LLC members agree to dissolve the LLC. After that, the LLC members who want to stay involved in the business can immediately reform a new LLC.
Dissolving and reforming an LLC allows members who want to leave the chance to do so. Furthermore, reforming the LLC gives additional people a chance to become new LLC members.
Louisiana requires LLC members to give notice to the Secretary of State when adding or removing members. You can view and download the state’s notice of change of members document at sos.la.gov.
There’s no doubt that LLCs have many advantages, but an LLC transfer of ownership can quickly get really messy. One of the best things you can do to make the process easier is to take advantage of our operating agreement template.
Also, keep in mind that it’s generally advisable to hire a business attorney when you encounter LLC ownership transfer issues.
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.
Louisiana Business Resources
Yes. You can sell your interest in an LLC through a partial transfer or a full transfer.
Yes, unless the operating agreement states otherwise. Typically, all existing members must agree before new members may be added to the LLC.
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.
No. Louisiana law defines an LLC “member” as an individual with a “membership interest,” which includes the right to a share of the LLC’s profits, a share of the LLC’s assets, and voting rights. However, a person can have the right to receive profits without being a member — for example, when they inherit an interest from a deceased member.