Limited liability companies, or LLCs, are an efficient way to formulate a business. LLCs provide tax advantages while offering legal protection from personal liability in most circumstances. To that extent, LLCs and corporations are substantially similar.
One significant way that LLCs and corporations differ is that transferring corporate ownership is much easier than an LLC transfer of ownership. Stockholders own a corporation. Transferring ownership is simply a matter of buying or selling the stock. Even in a closely held corporation, shares may be bought and sold. The market and regulatory formalities make transferring corporate ownership straightforward. The same can’t be said of ownership rights in an LLC.
The owners of an LLC aren’t shareholders. Oklahoma law refers to them as members. To transfer LLC ownership in Oklahoma, the member has to transfer vested ownership rights. The majority of the members of the LLC, if any, must consent to the transfer in writing. That is, unless the LLC’s Operating Agreement specifies otherwise.
Forming an LLC in Oklahoma could be a daunting task. Fortunately, you can partner with ZenBusiness to form an Oklahoma LLC quickly and easily, and take advantage of our many formation and compliance services to help you grow your business.
First Things First: Oklahoma Operating Agreements
A well-crafted and thorough Operating Agreement (OA) can save you a ton of headaches. An Operating Agreement is a document that governs the actions of the LLC. An OA will cover issues that are likely to arise such as:
- Distribution of profits and losses
- Adding a member
- Withdrawing membership
- Appointing a manager, unless the LLC will be managed by its members
- The procedure used to amend the OA
- Dissolution of the LLC
- Assignment of rights and obligations
- Voting shares
You can make your OA as comprehensive as you want. Just be aware that if you don’t have one, Oklahoma’s Limited Liability Company Act provides the default rules and processes for LLCs.. Put another way, if you don’t have an OA or your OA doesn’t cover an issue that arises, then Oklahoma’s Limited Liability Company Act will provide the answer. So, having a well-drafted and thorough OA is preferable to not having an OA at all.
ZenBusiness can help you if you’re not sure where to start drafting your Operating Agreement. Our Operating Agreement template can help you choose the drafting language that best suits your LLC.
Partial Transfer in Oklahoma: The Buyout Provision
You must exercise caution when you transfer LLC ownership in Oklahoma. If you transfer your ownership rights in a way that violates Oklahoma law or your Operating Agreement, then you could have a huge legal battle on your hands.
While you could vary the procedure your LLC follows, two common methods of transferring ownership interest are through a buy/sell agreement or with a full asset transfer agreement. We will discuss each of these individually.
Partial Transfers in Oklahoma: Buy/Sell Agreements
Having a buyout provision in your Operating Agreement is a smart idea. A buyout agreement typically allows the remaining members to purchase the membership rights of the member who wants to leave. The remaining members then divide among themselves the rights and responsibilities from the member who left.
You can draft a buyout agreement as a separate legal document, with your Operating Agreement providing the blueprint. If you don’t include instructions on how to transfer ownership of an LLC in Oklahoma, then the default position kicks in to resolve disputes.
Full Transfer: Selling Your Oklahoma LLC
Selling the LLC to a third party is possible as well. If most or all of your members are interested in giving up their ownership interest in the LLC, then selling the entire LLC could be a wise decision.
Your LLC’s Operating Agreement could have a clause that pertains to a complete transfer of the LLC. Hopefully, the OA will describe the process for transferring all membership interests to a third party. If not, Oklahoma law will fill in the blanks. Usually, all members of your LLC have to consent to the full transfer of your LLC or its assets.
Other Possible Issues
Death of a Member
The death of a member could create a sticky situation unless you account for it in your OA. As sad as it is, a member could die without warning. What will happen to your LLC in that tragic instance?
Membership in an LLC is private property, just like stock. Therefore, the interest a member has in an LLC passes to the member’s heirs as private property. The member’s spouse or children inherit the profits and benefits of the LLC. However, the heirs don’t become members of the LLC.
One way to handle the situation is to buy out the member’s heirs. That way, the surviving members can consolidate their interest and the LLC can continue as it is.
Your OA can account for how your LLC should end. LLCs don’t have to last forever. Remember that Oklahoma law will furnish you with the process to wrap up your LLC’s affairs if you don’t spell out the procedure in your OA.
Transferring an LLC’s assets and liabilities can become problematic, especially when new members want to join. Sometimes the best way to handle that situation is to dissolve the LLC and reform it with new members.
Dissolving and reforming have distinct advantages. First, the existing members can claim their profits and return on their initial investment upon leaving the LLC. Reforming your LLC, in that case, will allow you to distribute assets and liabilities among the new members free from encumbrance by the old members.
Remember that when you change members you will need to file the correct paperwork with the Oklahoma Secretary of State.
Partner with ZenBusiness to eliminate the stress of creating and maintaining an Oklahoma LLC
Now that you’ve learned the basics of how to transfer ownership of an LLC in Oklahoma, you understand how important it is to have a well-drafted Operating Agreement.
Transferring your LLC rights isn’t straightforward. You can make it a more stress-free process when you seek help from ZenBusiness. Our Operating Agreement template helps you streamline the process while giving you the information you need to create an Operating Agreement that meets your needs.
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. Look for guidance from the LLC’s Operating Agreement to learn the procedure you need to follow. If your Operating Agreement doesn’t cover that issue or your LLC doesn’t have an OA, then Oklahoma law is the default position.
Can an LLC issue new membership interests?
Yes, if the Operating Agreement permits you to do so. If not, you might need the written consent of all members to add a new member to your LLC.
How do I change ownership of an LLC with the IRS?
First, don’t mess around with the IRS. Contract a trusted tax advisor for advice on how to handle this situation. However, adding or subtracting a member will typically not require you to obtain a new employer identification number or EIN from the IRS. You will need a new EIN if you dissolve and reform the LLC.
Can an LLC member have no ownership interest?
Each member of an LLC has ownership rights. The member doesn’t have to exercise management rights. However, your Operating Agreement could spell out the rights and obligations of each member.