Limited liability companies (LLC) are known for being easy to form. When it comes time to transfer ownership, however, the process is a bit more involved.
Let’s compare ownership transfers of an LLC versus a corporation. Corporate owners, or shareholders, take ownership in the company by purchasing stocks. Since corporations have strict formalities to follow, buying and selling stocks is relatively straightforward.
For LLC owners (called “members” in an LLC), they have to follow whatever transfer rules the LLC has in place. A hallmark of LLCs is that they don’t have required formalities like corporations, but this means that each LLC may have different transfer procedures.
For more information about forming an LLC in North Carolina, check out ZenBusiness’s LLC formation services. Our team is here to help you start and grow your North Carolina LLC.
Now let’s walk through how to transfer LLC ownership in North Carolina.
First Things First: North Carolina Operating Agreements
The LLC’s operating agreement (OA) is the first place to look when wondering how to transfer ownership of an LLC in North Carolina. This document governs the internal operations of the LLC. While each LLC’s OA may be different, generally they cover the following:
- Management structure
- Capital contributions
- Limitation of liability
- Profit and loss sharing
- Membership changes
- Dissolution events and procedures
Unlike some jurisdictions, North Carolina doesn’t require an OA in order to form an LLC. However, having one will keep your business running smoothly and help avoid conflicts. Another benefit to having an OA is that you retain control over how your business is run. If you don’t have an OA, you must follow whatever North Carolina law says.
At ZenBusiness, we provide Operating Agreement templates for LLCs. With our template, you can craft a thorough OA that incorporates the necessary provisions to keep your business on track.
How to Transfer LLC Ownership in North Carolina
There are two ways to conduct an LLC transfer of ownership: a partial sale or a full sale.
Partial Transfer in North Carolina: The Buyout Provision
One way to convey your interest in a North Carolina LLC is a partial sale, in which you convey your interest in the LLC either to a third party or to the other members of the LLC. A transfer to other LLC members is also known as a buyout. With a buyout, one or more members transfer their ownership interest to the remaining LLC members, who redistribute it among themselves. A buy/sell agreement is used to document the transaction. The terms of any potential buyout are often outlined in the LLC’s OA under a buyout provision.
A thorough OA for your LLC can help you avoid uncertainty when it comes to a buyout scenario. By having the buyout terms already established in the OA, you can avoid conflict among LLC members when the time comes to transfer ownership.
Full Transfer: Selling Your North Carolina LLC
A full transfer involves the sale of the entire LLC. A new owner will either take over the entire LLC or just purchase the assets. Every member must consent to selling the LLC.
The OA is yet again the first place to look when contemplating the sale of the LLC. However, since this type of transaction is complex, it may be a good idea to hire a lawyer who can provide professional legal help. The last thing you want to have any sort of liability still lingering out there after the sale.
Other Possible Issues
Sometimes a change in ownership is unplanned. Here are some scenarios that may come up where transferring your LLC ownership is the best option.
Death of a Member
The passing of a member can significantly impact the management and structure of an LLC. When a member dies, the ownership interest typically goes to any surviving spouse or child of the member. While they have no right to assert a management interest in the LLC, they do receive an economic interest in the LLC.
In this instance, the remaining LLC members may consider buying out the family member with the inherited ownership interest.
Dissolution and Reformation
Disagreements, differences of opinion, or retirement may all be reasons why multiple members want out of an LLC. If that’s the case, doing more than one partial transfer may be more stress than it’s worth. An alternative is to dissolve the LLC completely and form a new one. This gives an opportunity for members to exit and provides a clean slate for those wanting to continue the business.
File proper change of ownership paperwork in North Carolina
If the ownership transfer causes a change of the registered agent or the LLC’s principal office address, then you must notify the North Carolina Secretary of State by filing the appropriate form.
Rely on ZenBusiness for tools to help your North Carolina LLC
It’s relatively easy to get into an LLC, but may not be so easy to get out. To set your North Carolina LLC up for success, a comprehensive Operating Agreement is key. Let us help you with our North Carolina LLC formation services and operating agreement template.
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 a North Carolina LLC?
Yes, you may sell your interest in an LLC, but it must be done in accordance with the LLC’s OA.
Can a North Carolina LLC issue new membership interests?
If the OA permits it and all members approve, the LLC may issue new membership interests.
How do I change ownership of an LLC with the IRS?
If the ownership transfers results in any of the following, you need to notify the IRS:
- Change in the responsible party (Form 8822-B)
- Change in tax classification (Form 8832)
- Dissolution of the LLC
Otherwise, you don’t need to alert the IRS of an ownership change.
Can an LLC member have no ownership interest?
No, by becoming an LLC member, you acquire an ownership interest.