Creating an LLC signifies the beginning of a multitude of opportunities for business owners. Although Mississippi law only requires one LLC member, LLCs are typically made up of multiple members who share the management responsibilities of the business. Inevitably, there are situations when an LLC member decides to leave the LLC. Alternatively, you might choose a different path for your business and want to sell your entire LLC to a third party. Fortunately, this guide can give you a good idea of some of the necessary steps to take when an LLC member wants to leave or when you want to sell your LLC.
Corporations vs. LLCs
Transferring ownership in an LLC is more complicated than transferring ownership in a corporation. A corporation’s ownership is vested in shares of stock. Shareholders are allowed to transfer their stocks in any way they wish. But an LLC’s ownership is vested in its members through membership interests. Membership interests aren’t freely transferable without satisfying the LLC’s Operating Agreement or getting the consent of all the other LLC members.
First Things First: Mississippi Operating Agreements
A Mississippi LLC Operating Agreement functions as a guide for the entire business. An Operating Agreement (OA) typically includes:
- The purpose of your business
- How you want your LLC to be taxed
- How to transfer membership interests in the LLC
- Distribution of profits and losses
- How internal disputes will be resolved
- Powers and duties of members and managers
- Buyout and buy-sell agreement rules
- Events that trigger dissolution of the LLC
- How to amend the Operating Agreement
The Operating Agreement is tailored specifically to your LLC based on the plans and goals you have for your business, how the LLC is managed, and the industry you operate in. ZenBusiness’s Operating Agreement template allows you to customize your OA to fit your LLC.
Mississippi doesn’t legally require LLCs to have an Operating Agreement on file. However, an OA is strongly encouraged so that the details of your LLC are documented and easily accessible. Without an Operating Agreement, your LLC is governed by the default laws of Mississippi.
How to Transfer Your Mississippi LLC
There are two common methods of transferring ownership interests in an LLC without dissolving the business: (1) a partial transfer of ownership; and (2) selling your entire LLC to a third party. The two methods are discussed in detail below.
Partial Transfer in Mississippi: The Buyout Provision
A partial transfer occurs when an LLC member wants to leave the LLC. The remaining LLC members may make a deal to buy the membership interest from the LLC member who wants to leave. The purchased ownership interest is then distributed among the remaining members.
When the LLC members decide to purchase the departing LLC member’s ownership interest, the purchase is done by completing a buy/sell agreement that outlines the details of the transaction. A properly drafted Operating Agreement for the LLC contains provisions explaining the structure of the buy/sell agreement.
Without an Operating Agreement, Mississippi law requires that all the members of the LLC consent to the buy/sell agreement. Having a detailed Operating Agreement that clearly explains how to perform a partial transfer and execute a buyout is crucial to minimizing disagreements among LLC members later down the road.
Full Transfer: Selling Your Mississippi LLC
Sometimes business owners decide to sell their entire LLC to a third party. Purchasers may wish to buy your entire business, or they may only be interested in purchasing the assets of the business. Because all members of the LLC are affected by this decision, all LLC members must consent to the sale. A thorough Operating Agreement provides a detailed guide for selling your LLC, including what should be included in a buy/sell agreement for the business.
The sale of an entire business is a complicated process, so you want to ensure that it is done correctly. It’s a good idea to consult with a Mississippi business attorney if you run into any issues.
Other Possible Issues
Other issues can arise triggering the assignment of membership interests in your LLC. The most common circumstances are described below.
Death of a Member
If an LLC member dies, the personal representative of the member’s estate is entitled to exercise the deceased LLC member’s rights for the purpose of settling the estate. The deceased member’s financial interest in the LLC then passes to his or her spouse and children, depending on the terms of his or her estate plan.
The deceased LLC member’s heir, referred to as the assignee, receives the interest in the LLC. But they are only entitled to share in the profits and losses of the business, receive distributions, and enjoy other benefits that the deceased member possessed before passing. The assignee isn’t allowed to participate in the management or operational affairs of the LLC.
The Operating Agreement can outline the process for assignees to become members. Otherwise, the assignee can become a member upon the consent of the remaining LLC members. Offering to purchase the assignee’s interest through a buy/sell agreement is typically the best option in the event the assignee has no interest in becoming an LLC member or the other members don’t want them to.
In some cases, transferring partial ownership interests in an LLC is more troublesome than simply dissolving the LLC and forming a new one. If multiple current members of your LLC want to sell their interests, but other individuals want to join the LLC as new members, dissolving your LLC allows all of the members who want to leave to do so. Then you can file a new Certificate of Formation to create another Mississippi LLC with new members.
File proper change of ownership paperwork in Mississippi
Mississippi doesn’t require LLCs to list the names of its members on the Certificate of Formation. However, Mississippi does require LLCs to file annual reports with the Secretary of State. After making changes to the members in your LLC, that change can be reflected on your LLC’s next annual report, which has to be filed every year regardless.
Let ZenBusiness Help You Achieve Your Mississippi Small Business Dreams
It can be incredibly complicated to transfer LLC ownership in Mississippi. However, having a detailed Operating Agreement that illustrates the process for you can eliminate unnecessary headaches and stress. With ZenBusiness’s Operating Agreement template, you can select provisions that apply to your business and alleviate future confusion about procedural issues by laying out the process at the front end of your 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. The terms of your well-drafted Operating Agreement will lay out the process for selling your membership interest in the LLC. If not, all members must approve any sale of LLC membership/ownership interest.
Can an LLC issue new membership interests?
LLCs can issue new membership interests with the consent of all members of the LLC, as long as issuing new membership interests isn’t prohibited by the Operating Agreement.
How do I change ownership of an LLC with the IRS?
The IRS requires LLCs to be classified as either corporations, partnerships, or sole proprietorships, as it does not recognize an LLC as a business entity.
If you sell your entire LLC, file a Form 8822-B, Change of Address or Responsible Party – Business, with the IRS within 60 days of the sale. This form reflects that another party is now responsible for the business.
Can an LLC member have no ownership interest?
All members of an LLC have an ownership interest, even if they don’t participate in the management or operations of the business from day to day. LLC members can hire managers to manage the day-to-day affairs of the LLC. These managers don’t necessarily have an ownership interest in the business.