{"id":4806,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/buyout-agreements-changing-llc-ownership.html"},"modified":"2025-10-20T15:06:00","modified_gmt":"2025-10-20T20:06:00","slug":"buyout-agreements-changing-llc-ownership","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/buyout-agreements-changing-llc-ownership.html","title":{"rendered":"Buyout Agreements: Changing LLC Ownership"},"content":{"rendered":"\n
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Buyout Agreements: Changing LLC Ownership<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A buyout agreement<\/span>, also known as a buy-sell agreement<\/span>, is a legal document<\/span> between LLC members<\/span> to ensure smooth membership interest<\/span> transitions among remaining members<\/span>. It determines what happens if a member leaves the company due to retirement, death, disability, or other events.<\/p>\n\n <\/div>\n\n\n\n

Understanding buyout agreements<\/span> is crucial when you\u2019re involved in a limited liability company<\/span> (LLC). These agreements guide the process of changing LLC ownership<\/span>, including interactions with the Internal Revenue Service (IRS). A\u00a0buy-sell agreement<\/span><\/a>, a business continuity agreement, or a buyout agreement<\/span> is a contract between co-owners of a company. The agreement determines how to handle a member\u2019s departure.<\/p>\n

A buyout agreement<\/span> is an important part of\u00a0LLC ownership<\/span><\/a>. It regulates who can buy a member\u2019s interest<\/span> and creates a predetermined price for ownership interests<\/span>. This article sheds light on these agreements, which are vital for running a small business or being part of an LLC.<\/p>\n

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Who Needs a Buyout Agreement<\/span>?<\/h2>\n

Buyout agreements<\/span> are essential for several key players in an LLC<\/a>. Members of an LLC<\/span> must be aware of these agreements\u2014they directly impact their ownership percentage and personal liability. Small business owners<\/span>, especially those transitioning from a sole proprietorship to an LLC, need to understand these agreements thoroughly. People joining an LLC must also be familiar with how ownership transfers are handled within the LLC ownership<\/span>.<\/p>\n

How To Transfer LLC Ownership<\/span><\/h2>\n

Transferring LLC<\/span><\/a> ownership<\/span> involves several key steps:<\/p>\n

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  1. \n

    Review the\u00a0<\/strong>LLC <\/span>operating agreement<\/span><\/strong><\/a>.<\/strong>\u00a0This document should outline the process for change of ownership within your LLC.<\/p>\n<\/li>\n

  2. \n

    Determine the value of the LLC<\/span>.\u00a0<\/strong>Establishing the business\u2019s value is critical for a fair transfer of ownership of an LLC. You may need the help of an appraiser<\/span> to determine the LLC\u2019s valuation<\/span>.<\/p>\n<\/li>\n

  3. \n

    Complete the necessary paperwork.\u00a0<\/strong>This includes drafting a buyout agreement<\/span> or purchase agreement<\/span>.<\/p>\n<\/li>\n

  4. \n

    Update the\u00a0<\/strong>articles of organization<\/strong><\/a>.<\/strong>\u00a0It may be necessary to file amendments with the secretary of state to reflect the ownership change.<\/p>\n<\/li>\n

  5. \n

    Notify the IRS.\u00a0<\/strong>Update your\u00a0employer identification number<\/a>\u00a0(EIN) and other tax-related information if needed.<\/p>\n<\/li>\n

  6. \n

    Amend licenses and permits.<\/strong>\u00a0Ensure all business licenses and permits are updated with the new ownership information.<\/p>\n<\/li>\n

  7. \n

    Inform the registered agent and stakeholders.<\/strong>\u00a0Keep all relevant parties informed about the ownership change.<\/p>\n<\/li>\n<\/ol>\n

    Why Create a Buyout Agreement<\/span>?<\/h2>\n

    Chances are, a member dies<\/span> or leaves the company at some point. Without an LLC\u00a0<\/span>buyout agreement<\/span><\/a>, state law<\/span> may force the LLC\u2019s dissolution when one member leaves. A buyout agreement<\/span> can establish preset guidelines for handling ownership changes. For example, a member can give other members the right of first refusal<\/span> for buying their interest in the company, preventing unwanted buyers.<\/p>\n

    A buyout agreement<\/span> can control:<\/p>\n