When starting a new business, it’s impossible to predict the unexpected events that may require a transfer of ownership. Unfortunately, although LLCs do offer a great amount of flexibility compared to other entity types, transferring ownership is more complicated.
This is for one simple reason: how ownership works in an LLC. For example, corporations split ownership into stocks that shareholders can freely buy and sell. By contrast, ownership in an LLC vests directly with its members. As a result, a member’s rights are not freely transferable, and there are often much stricter requirements in place.
If you’re looking for more information about starting an LLC in Nevada, check out our Nevada LLC formation page.
First Things First: Nevada Operating Agreements
An Operating Agreement (OA) is an official document that sets out specific rules regarding the financials and management responsibilities within the LLC. Some jurisdictions require an OA at the time the business forms; others, like Nevada, don’t require it. However, having an OA is usually a good idea.
If an LLC doesn’t have an OA, Nevada law will fill in the gaps. When the LLC does have an OA, however, that’s the first place to look for details on how to transfer ownership. Knowing where to start with an OA can be difficult. To make it easier, ZenBusiness offers a Nevada Operating Agreement template to help you get started.
So if you have an LLC with an OA, how can you transfer ownership of the LLC in Nevada? There are typically two methods that don’t involve dissolution.
Partial Transfer in Nevada with a Buyout Provision
Operating Agreements typically contain a “buyout provision” that triggers after some event. At that point, members of the LLC will purchase the ownership interest from the member who wants to leave. The remaining members split that interest equally among themselves, and continue to operate the LLC.
The execution of a buyout provision typically also involves a buy-sell agreement. This agreement is the legal contract that binds and protects the rights of the members during the transfer. Just keep in mind that while most jurisdictions permit the use of a buy-sell agreement without an OA, this isn’t universally true.
Of course, having a thorough OA is the way to go. With one in place, you can reduce the risk of in-fighting among LLC members, as well as give everyone an equal opportunity to assert their rights.
Full Transfer: Selling Your Nevada LLC
Where a buyout occurs only between members, a full transfer occurs between the members and a third party. In this situation, as long as all the LLC’s members consent to the sale, the entire business entity transfers to the buyer (or at least, the entity’s assets). As before, the OA will typically have more details about when and how to execute a full sale.
It’s also important to note that a full entity sale is an important decision that you won’t want to undertake without professional representation. Hiring an attorney is a good idea to make sure everyone’s rights are preserved.
Other Possible Issues
A member’s death or the decision to dissolve the LLC are also events that may facilitate an ownership transfer.
Death of a Member
When an LLC member dies, their ownership interest doesn’t immediately vest with the other members. Instead, that interest passes to the deceased member’s heirs, such as a spouse or child. This interest is called the transferable interest and doesn’t include any ownership rights. As a result, the heir won’t have any management rights within the LLC; however, they will have a right to benefits or profit-sharing. The remaining members have the option to buy out the heirs, which can help avoid future complications.
Dissolution and Reformation
Dissolution and reformation is the process of undoing an LLC’s creation and starting it over. When the LLC ceases to exist, the ownership of its members ceases to exist as well. This allows them to re-distribute the ownership interests to members of the new LLC, including any new members. Any members who wish to leave the venture and cash out their investment may do so as well.
Whatever the occasion for the ownership transfer, don’t forget to report the change in ownership. In Nevada, you must report the change to the Nevada Secretary of State. For more information on the required forms and fees, visit nvsos.gov.
Seeking the right tools for your Nevada LLC? ZenBusiness is here!
As you can see, transferring an LLC isn’t as straightforward as it might seem, especially with how flexible LLCs are in other respects.
Luckily, having a comprehensive Operating Agreement goes a long way toward eliminating some of the uncertainty regarding an LLC ownership transfer. Not sure where to start? Check out ZenBusiness’s Operating Agreement template and other business formation tools.
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, as long as you follow the procedure set out in your Operating Agreement.
- Can an LLC issue new membership interests?
An LLC can issue new membership interests as long as the OA allows it. New members may also purchase a departing member’s interest. Generally, however, a new member can join only with the consent of the existing members.
- How do I change ownership of an LLC with the IRS?
The IRS taxes LLCs as corporations, partnerships, or based on their owner’s tax return, as appropriate. Additionally, because LLCs are creations of state law, there are fewer requirements for reporting changes to the IRS. However, the IRS does require notice if the “responsible party” changes. For more information about the responsible party requirements, visit irs.gov.
- Can an LLC member have no ownership interest?
No, all LLC members have an ownership interest. If they don’t then they aren’t a “member.” An LLC member doesn’t necessarily have to take an active role in the management of the LLC, but they still have an ownership interest.