Whether it’s for joyous or less joyous reasons, sometimes a business relationship needs to end. Maybe you thought about it long and hard and you’re ready to sell all or part of your limited liability company (LLC). Now that you’ve made a decision, you likely want to know how to transfer ownership of an LLC in Maine. The following article has information on how to transfer LLC ownership.
LLCs vs. Corporations
While LLCs involve fewer formalities to start conducting business than corporations, they generally involve more formalities than corporations to transfer ownership. This is because of the way the two business structures build capital and operate.
Corporations build capital through issuing shares, and shareholders own the business. In general, unless there’s a restriction under the Articles of Incorporation, bylaws, or another kind of corporate agreement, a shareholder can sell their ownership without restriction.
LLCs, on the other hand, are funded and owned by members. While a member can sell their right to receive distributions of the LLC, they generally must follow additional rules to transfer their rights to direct the affairs of the LLC. To learn more about starting a Maine LLC, you can visit ZenBusiness’s Maine LLC Formation Service page.
First Things First: Maine Operating Agreements
A Limited Liability Agreement, or Operating Agreement (OA), dictates how your LLC members interact with each other and the company. You can tailor many aspects of your LLC’s operation through an OA. The OA can state how you want to handle ownership transfers. Maine requires your LLC to have an OA, but you can write your OA after you file your initial Certificate of Formation if you like.
Having an OA can save you a lot of time and headache in the long run. It can take the confusion out of ownership transfers and let you and your members know what to expect in various business situations. If you need help writing an OA, ZenBusiness gives you easy-to-use building blocks with our Maine Operating Agreement Template.
There are many ways to transfer ownership of your business. If legally dissolving your LLC to sell it doesn’t suit your needs, the accepted options for transferring ownership are a partial sale (buyout), or a full entity sale.
Partial Transfer in Maine: The Buyout Provision
Your best option for an LLC transfer of ownership is to write an OA with detailed buy/sell provisions in it. If your LLC’s OA has buy/sell provisions, just follow those provisions in a partial transfer. Otherwise, you have to follow the provisions in the Maine statutes.
A member’s interest in the earnings of an LLC is their personal property — this is known as a transferable interest. Absent a restriction in an OA, there aren’t many limitations to a member’s ability to sell their transferable interest. However, someone who purchases the transferable interest doesn’t have membership rights. To transfer membership rights, you must follow the OA provisions or all of the members must consent to admitting the purchaser as a member. A member can also transfer ownership to the remaining members. If a member leaves an LLC that doesn’t dissolve, Maine law gives that member only the right to continue receiving a share of the LLC’s earnings. With buy/sell provisions in an OA, the member can sell their interest to the remaining members to let them split the ownership interest how they want.
Business transactions can get tricky. It’s important to have the details of a deal hammered out in writing to protect everyone participating. With a detailed OA containing buy/sell provisions, you can sidestep potential conflicts in a transfer of LLC ownership and protect the rights of all involved parties.
Full Transfer: Selling Your Maine LLC
Sometimes the offer you receive for your LLC requires that you hand over everything. A buyer might want to buy all your LLC’s assets, or they might want to buy the business in general. Hopefully, your LLC’s OA has provisions for how to execute a full transfer so you can just follow those provisions. This is the best option because you write those OA provisions based on what suits you best. If your OA doesn’t have instructions for fully transferring the business, all members must consent to the sale. Whether you have OA provisions or not, hiring an attorney may be a necessary step in this kind of sale because it can be complex and have consequences best reviewed by a legal professional.
Other Possible Issues
Even if your LLC isn’t considering any offers to buy or sell, ownership could change as the result of other events.
Death of a Member
Sometimes a business makes a change because of tragedy. A deceased member’s financial interest can pass to their heirs. Absent OA provisions, an heir becomes a member by unanimous consent of the remaining members. Otherwise, it might be easiest for the remaining members to buy the heir out of their financial interest. If the deceased member was the last member, the LLC dissolves unless all remaining holders of transferable interests choose a new member and that prospective member consents within 90 days.
Sometimes the cleanest way to make change is to start over. Members can dissolve an LLC without court involvement by following the OA or by unanimous consent. Members of the dissolved LLC can take their distributions and start a new business with different associates if they wish.
File proper change of ownership paperwork in Maine
In some cases, you need to file a change of ownership paperwork after a sale. For example, if the sale of your LLC means the name of the business or its registered agent information changes, you need to file a Certificate of Amendment with the Secretary of State. In cases of dissolution or certain kinds of sales, you have to file a Certificate of Cancellation.
Depend on ZenBusiness to streamline your Maine business operations
Forming and running an LLC is not easy, but some aspects of it should be. While you may need to consult an attorney for complicated business matters, your business procedures can help you avoid complications.
An Operating Agreement is a great way to streamline your business affairs. Putting customized, detailed business procedures in your Operating Agreement means less confusion and conflict. ZenBusiness’s Maine Operating Agreement Template helps you confidently take the first step toward a smoothly running business.
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 transferable interest in an LLC, meaning you can sell your right to receive LLC distributions. A purchaser of your interest may become a member only according to the provisions of your Operating Agreement or unanimous agreement from the members.
Can an LLC issue new membership interests?
Yes. LLCs can issue new membership interests by unanimous agreement.
How do I change ownership of an LLC with the IRS?
The IRS doesn’t recognize an LLC as an entity, but some LLCs have or require an employer identification number (EIN). If your LLC has an EIN, you must file Form 8822-b to let the IRS know about changes in your business’s address, location, or responsible party. You have to file the form within 60 days, and it should take four to six weeks for the IRS to process the reported changes.
Can an LLC member have no ownership interest?
No. All members have an ownership interest in the LLC. However, a person can have a transferable interest without becoming an LLC member.