If you’re thinking about transferring ownership in a South Carolina limited liability company (LLC), the first thing you need to know is that the process is more involved than you might think. In a corporation, owners are referred to as shareholders. The ownership interests of these shareholders are vested in the shares of stock, which are freely transferable through purchases and sales of those shares. Conversely, in an LLC, ownership interests are vested in the individual members themselves. These LLC ownership interests aren’t freely transferable without the unanimous consent of the other members of the LLC, which can make transferring ownership much more complicated.
With the right guidance, however, the process for LLC transfer of ownership can feel much more manageable. The guide below will provide valuable information on how to transfer ownership of an LLC in South Carolina. To learn more about LLCs and how to form them, visit ZenBusiness’s South Carolina LLC formation page today.
First Things First: South Carolina Operating Agreements
One key to a smooth transfer of LLC ownership in South Carolina is the drafting of an Operating Agreement (OA). While not required under South Carolina law, an Operating Agreement is one of the most important documents that you can have for your new or growing LLC.
South Carolina’s Limited Liability Company Act defines an Operating Agreement as an agreement “concerning the relations among the members, managers, and limited liability company.” State law provides a lot of leeway for LLCs in determining what to include in the OA. However, common provisions of an Operating Agreement will address:
- Rules and procedures for the transfer of LLC ownership interests
- Duties and obligations of members
- Management rights and responsibilities
- Voting requirements and procedures
- Procedures for amending the OA
An Operating Agreement need not be in writing to be effective and enforceable. However, if you do decide to create an OA for your South Carolina LLC, having this in writing is the best way to provide clarity and prevent future disputes.
If your LLC doesn’t have an Operating Agreement, or the OA does not address ownership transfers, the process will instead be subject to the default rules under South Carolina law.
Of course, there’s nothing wrong with proceeding under the state default rules. Nevertheless, having a comprehensive and detailed Operating Agreement in place for your South Carolina LLC is often a better option. Creating a unique OA to address the specific needs and requirements of your business will provide your LLC with the flexibility and clarity it needs.
Don’t find yourself without an Operating Agreement for your South Carolina LLC. Use ZenBusiness’s LLC Operating Agreement template to help you get started.
Methods to Transfer LLC Ownership in South Carolina
There are two generally accepted methods of transferring ownership in an LLC without having to dissolve it entirely. These two methods are (1) a partial transfer, and (2) a full transfer.
Partial Transfer: The Buyout Provision
A partial transfer allows members an option to leave the business. Unless the OA indicates otherwise, this can only be done with the consent of all other members of the LLC. However, if all members do consent, this is sometimes the simplest way to allow the departing member(s) to leave the business.
In a partial transfer, the remaining members will enter into an agreement to buy out the departing member’s interest. This is generally referred to as a buyout. The remaining owners of the LLC split the departing member’s ownership interest amongst themselves.
Most LLC Operating Agreements will address more detailed instructions for completing a buyout. These types of buyouts are frequently accomplished through what’s called a buy/sell agreement. If your OA does not address the rules and procedures for a buyout, or if your LLC does not have an Operating Agreement, you may still move forward with a buyout. However, the default rules under South Carolina law will control the process.
Having a thorough OA in place is the best way to ensure that all members of the LLC know and understand the appropriate process. This can help to ensure that everyone has an equal opportunity to assert their rights within the LLC as a whole.
Full Transfer: Selling Your South Carolina LLC
A full transfer, on the other hand, involves the sale of the LLC, either the entire business or just its assets, to a third party. As with a partial transfer, the LLC Operating Agreement will likely address the precise steps and procedures for completing a full transfer.
A full sale is often a complex process with many requirements and moving parts. Thus, before moving forward with a full transfer, make sure that you first:
- Have the consent of all members of the LLC
- Determine whether the LLC’s Operating Agreement or state law will govern the process
- Carefully consult the applicable requirements and understand the appropriate steps and requirements for completing the transfer
Lastly, don’t forget to consult legal counsel. At the end of the day, selling your business is a legal process, so you want to make sure that you do everything right. Hiring a business law attorney to guide you through the process is one of the best ways to know that you’ve followed the correct processes and requirements.
Other Possible Issues
Of course, these aren’t the only situations that might trigger a transfer of LLC ownership in South Carolina. Below are some other scenarios to be aware of that involve ownership transfers in an LLC.
Death of a Member
When an LLC member passes away, their interest will pass to their heirs. An heir who receives an interest in an LLC is referred to as a “transferee.” Importantly, this transferee won’t receive any ownership, voting, or management rights in the LLC. Rather, the transferee only receives rights in the distributions and other benefits of the deceased member’s interest. Thus, the best option in the aftermath of the death of an LLC member is often to proceed with a buyout of the transferee’s interest.
Sometimes, many members of the LLC may want to leave the business. Rather than proceeding with multiple partial transfers, dissolving the business might be a better option.
This way, you can dissolve the business and provide all members the opportunity to take their respective investments and leave. Then, those who want to continue the business venture can reform a new LLC entity, while also providing potential new members the opportunity to join at that time.
File proper change of ownership paperwork in South Carolina
When changes in ownership are made to the LLC, it’s important to update the State of South Carolina. Additionally, if you intend to amend your Articles of Organization or when members want to withdraw from the LLC, make sure to file the requisite forms with the Secretary of State.
Get started on your South Carolina LLC Operating Agreement today
South Carolina law doesn’t require LLCs to have an Operating Agreement. As you can see, however, having one in place for your South Carolina LLC is a great benefit. A comprehensive OA can help prevent confusion about the rules and requirements of the LLC as well as conflicts among and between LLC members. In turn, this can also reduce the likelihood that potentially costly disputes will arise.
Allow your LLC to get off on the right foot by having a thorough Operating Agreement in place. Use ZenBusiness’s Operating Agreement template to provide you with the foundation you need to help you get started. For a more complete look at how we can help your LLC thrive, check out our slate of formation and compliance services.
Disclaimer: The content on this page is for informational purposes only, and doesn’t 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, LLC members do have the right to sell their individual interests in the business. While the process isn’t always simple, your LLC Operating Agreement will likely detail the process for doing so.
Can an LLC issue new membership interests?
Yes, an LLC may issue new membership interests, but there are some caveats. Primarily, an LLC must have the unanimous consent of all members of the LLC to accomplish this.
How do I change ownership of an LLC with the IRS?
In most cases, you won’t have to report changes in LLC ownership to the IRS. However, if you dissolve the business entity or change its tax classification, you must report such changes to the IRS. Additionally, you may also need to file a form 8822-B if the LLC changes the responsible party for your business.
Can an LLC member have no ownership interest?
No, all members of an LLC will have an ownership interest in the business. A member is able to transfer their right to receive financial distributions from the LLC. However, they can’t transfer their membership and management interests in the business without the consent of all other members of the LLC.