Limited liability companies, or LLCs, are a tax-efficient way to organize your business in Oregon and are relatively easy to form. LLCs also help protect the owners of the company, called members, from legal liability. Those legal protections make LLCs a popular choice among small business owners when organizing their new business.
But LLCs have one major disadvantage over corporations. LLC transfer of ownership in Oregon is difficult because the members of the LLC have all of the voting rights. The members must consent to the transfer of ownership in the LLC. By contract, stockholders own corporations. And stocks are freely transferable, so you only need the consent of the buyer and seller to make a deal.
There is another reason why LLC transfer of ownership is difficult. The lack of formalities or regulations governing the sale of an LLC makes buying and selling a member’s interest more tricky than selling ownership in a corporation. State and federal laws regulate and oversee the transfer of publicly traded stock. State laws and regulations often govern transfers of stock from closely held companies also.
Oregon law spells out the formalities you must follow when organizing an LLC. To learn more about forming an LLC in Oregon or any other state, ZenBusiness can help.
First Things First: Oregon Operating Agreements
Your LLC’s operating agreement (OA) is the most important document you’ll need. If you choose to draft one for your LLC, it should spell out your expectations for operations, adding new members, transferring membership rights, the role of the manager, and describe the buy-out process when someone wants to leave the LLC. You also need to include the voting rights of members, whether your LLC should require unanimous consent to transfer assets, and membership rights.
Oregon law allows LLC organizers to operate without a written OA. However, having an OA is wise because you can spell out how you want to run your business in great detail. If you fail to address any issue in your OA, then Oregon law kicks in under the default rule. Unfortunately, you may not like how default state law resolves your issue. It is far better to have a well-drafted OA.
For these reasons, you may want to make drafting a comprehensive OA a priority. If you don’t know where to start, use our Operating Agreement template to draft an OA that protects your assets, sets the rules of your LLC, and assigns an ownership interest to each member.
How to Transfer Ownership Interest in an Oregon LLC
Your OA should specifically address how a member can leave the LLC. Comprehensive drafting can help you out of a real jam. A departing member could force your LLC to dissolve unless you address how to transfer ownership of an LLC in Oregon in your OA.
There are two proven ways LLC transfer of ownership can occur without dissolving the LLC — partial transfers and full transfers. We will discuss each so you can choose the option best suited for your needs.
Partial Transfer in Oregon: Buyout Provision
The buyout provision in your LLC’s OA can include a buy/sell agreement. A buy/sell agreement allows the other members of your LLC to sell their interest in the LLC to the other members. The remaining members then subsume the rights of the departing member.
Your OA needs to describe the process in great detail. You may want to include a clause about the right of the first refusal, how the membership rights will be allocated, voting rights allocation, and how the transaction will be funded.
You could use broad language to allow for some flexibility or you could be very specific. However, having a detailed OA can avoid in-fighting as well as costly and burdensome litigation.
Full Transfer: Selling Your Oregon LLC
Your OA should discuss what you want to happen if you decide to sell the LLC to another party. You could sell everything the LLC owns or just your business assets. Either way, a full transfer of rights is a complex legal process.
You could make any sales easier if you anticipate selling the LLC as a whole. Therefore, you may want to spell out the process you want to follow in the OA. All members of the LLC need to consent to sell the business outright. However, your OA could contain a provision to the contrary if you want.
Other Possible Oregon LLC Transfer Issues
Death of a Member
Typically, when a member dies, the ownership interest passes to the member’s heirs. However, they only receive the benefits and a percentage of the profit. The heirs do not receive voting rights or other rights retained by members of the LLC. The best option may be for the remaining members to buy out the rights from the heirs. However, addressing this issue clearly in your OA removes uncertainty and simplifies the process.
LLCs theoretically can last forever. But, there might come a time when terminating operations is desirable. Partially transferring ownership can be a hassle. A better solution may be to dissolve the LLC and reform it with new members. Dissolving the LLC gives the members a chance to withdraw their money from the business and opens up membership to others outside of the organization.
File proper change of ownership paperwork in Oregon
Keep in mind that the Oregon Secretary of State requires LLC members to file the appropriate forms. Failing to file the proper forms when changing ownership could ensnare you in an avoidable headache.
Let ZenBusiness help you grow your Oregon LLC
Take the time to talk to us about your needs. We’re here to help small business owners navigate a tumultuous business environment. We will help you meet all legal requirements so you can focus on the things that matter most to you.
Our Operating Agreement drafting template gives you a wide range of options so you can select the ones that you need to run your LLC. Having a well-drafted operating agreement can ease your stress when it comes time to transfer ownership.
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. Your operating agreement can describe the steps you need to take to sell your business. If not, state law governs the transfer of LLC ownership in Oregon.
Can an LLC issue new membership interests?
Your operating agreement could define situations when your LLC may issue a new membership interest. Adding another member significantly affects the rights of the existing members. Your Operating Agreement may require unanimous approval of all existing members before adding new ones. The default rule in Oregon states that a majority of members need to approve admitting new members.
How do I change ownership of an LLC with the IRS?
The IRS does not record ownership changes, but bear in mind that you may need a new Employer Identification Number (EIN) if you dissolve and reform your LLC with new members.
Can an LLC member have no ownership interest?
Oregon law creates an ownership interest in each member. There are some circumstances where you can transfer the right to receive profits, but this does not make someone a full member with all the attached rights.