People looking to form a business in New Mexico must first choose a business entity type. For most, a New Mexico limited liability company (LLC) is easy to form and requires fewer formalities than a corporation. But when it comes to transferring ownership interest in an LLC, the process isn’t quite as straightforward. But don’t worry! This guide will show you the most common transfer methods, and how the team at ZenBusiness can help.
How to Transfer Ownership of an LLC in New Mexico
Unlike with corporate stock, there are a lot of moving parts when it comes to transferring LLC ownership. Corporations have shareholders who are permitted to buy and sell shares in the company freely. On the other hand, members make up limited liability companies. These members have a vested ownership interest in the business. Essentially, members run the business, so all ownership decisions have to be approved by everyone involved.
First Things First: New Mexico Operating Agreements
The most important part of making sure things go as planned when you transfer LLC ownership in New Mexico is to actually have a plan. An operating agreement (OA) is a document that outlines how the company will operate, with emphasis on the administrative components. The document is legally binding. Some of these components include:
- Ownership percentages
- Rights of members
- Responsibilities of managers
- Distribution of profits and losses
- Provisions for transfer of individual ownership
- Frequency of meetings
- Buy/sell agreement procedures
Having a detailed, comprehensive operating agreement is a pivotal step toward having a smooth transfer of ownership. If provisions to transfer LLC ownership in New Mexico aren’t stated in the operating agreement, the business has to use state statutes to guide the transaction. These statutory guidelines may or may not be what’s ideal for your company because they weren’t created with your specific business in mind. So if you haven’t created an OA or need to add additional provisions, we have a solution. Our Operating Agreement templates can guide you to make sure you draft an OA that fits your business.
Types of LLC Ownership Transfers
There are two ways to transfer your business ownership interest without having to completely dissolve the LLC and start all over again. Partial transfers refer to a change in ownership or partial ownership for one member. Full transfers involve selling the entire LLC.
Partial Transfer in New Mexico: The Buyout Provision
If a member wants to leave the LLC, the remaining members will often offer to buy their interest and split it amongst themselves. When one owner chooses to transfer LLC ownership to a third party in New Mexico, they may do so with the consent of all other members. A well-drafted operating agreement will contain provisions for ownership transfers. If it does not, the state rules will apply by default. Partial transfers are also referred to as “assignments.” According to New Mexico law, the rights of membership don’t automatically transfer to the assignee — only the financial interest. An assignee can become a member of the LLC only if the other members vote to make that happen. The assignor can transfer partial interest and still be responsible for all member management and decision-making duties.
Full Transfer: Selling Your New Mexico LLC
A buyer has the ability to purchase just the assets of the business or purchase the entire LLC. Properly drafted operating agreements include provisions for buy/sell agreements. All members typically must consent to the sale of the LLC. Selling a business can be a complex process, and more so if there’s no OA. You may want to consider hiring an attorney to help you with the sale if you want to be confident that it’s done correctly.
Other Possible Issues
There are many complicating factors that could arise with an LLC ownership transfer. Most of these can be simplified by having existing provisions in the company’s operating agreement. Here are a couple of things to keep in mind regarding LLC ownership transfers.
Death of a Member
When a limited liability company member dies, the interest is passed to their spouse or children unless otherwise stated in their will. It’s part of the estate. The company treats the heir receiving the interest as an assignee who doesn’t retain the same membership rights as the original member. They retain the rights to any benefits received by the decedent, but they don’t possess the right to manage the business. Often, the remaining members buy out the interest of any heirs.
A partial LLC ownership transfer can be really cumbersome. Your business’s unique situation such as the number of members, financial health, collaborative spirit, and other factors can have an impact on how easy it is to partially transfer LLC ownership in New Mexico. Sometimes it’s more efficient to dissolve the existing LLC and re-form with a fresh start.
File proper change of ownership paperwork in New Mexico
Approval from all members of the LLC is needed to transfer partial LLC ownership in New Mexico. After you get the approval of all members, you would file an Amendment to Articles of Organization with the Secretary of State. You need a copy of your original Articles of Organization to complete the form because you will need to reference the section you’re changing.
Making Your New Mexico LLC Ownership Transfer Easier
There are many factors to consider when you transfer LLC ownership in New Mexico. The best thing you can do to simplify the process is to be as prepared as possible. Having a detailed operating agreement can help ensure that all members are on the same page with transfer procedures. We can help with our operating agreement template, so you can draft an OA that fits the specific needs of your limited liability company. We want to enable you to keep moving forward and building your business while hitting fewer bumps in the road.
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?
You’re permitted to sell your financial interest in an LLC. Management rights as a member don’t automatically transfer with the interest. In New Mexico, this transfer is called an “assignment.” The assignee isn’t a member unless approved by all existing members.
- Can an LLC issue new membership interests?
With the approval of all current members of the LLC, the company can issue new membership interests. But keep in mind that this will alter the interest percentage of every member.
- How do I change ownership of an LLC with the IRS?
Use Form 8822-B to notify the Internal Revenue Service if the responsible party for your LLC changes. There’s typically a 4-6 week processing period.
- Can an LLC member have no ownership interest?
In New Mexico, LLC members have management and decision-making authority for the business. Someone with a financial interest may not be considered a member in all circumstances even if some interest is transferred.