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You are correct, the members would be selling their membership interests, not the business (the LLC is an independent entity).
In order to shift interests from larger percentages (such as the 49%) to smaller percentages (such as the 3 smaller portions of the 49%), it is often easiest to break the larger membership interest into smaller portions. These smaller shares can then be sold individually to the new members. You can break the entire set of holdings up (so that there are 100 "shares"-usually the easiest but some people avoid this for their own reasons), or you can split up only the 49%.
Unfortunately, I cannot provide you with document review of the documents (I cannot practice law on this site), but the documents that you are drafting are sales of interest from the current members to the new members. Make sure that the terms of the sale conform to the LLC governing documents (they are most likely basic terms and there should not be a problem, but I would recommend at least a quick review), and then record the change of ownership. Also, as you will likely have a new agent to receive service of process with the state, you will need to record these documents with the Oregon Secretary of State (and make sure to have the same information recorded for taxes as well.
That's a relief to know I'm on the right track at least! Thank you. So, would the splitting up of membership interests from "blocks" of 51/49 to 100 individual be an internal thing, recorded in minutes and updates to the operating agreement?
And are they called Shares in an LLC?
Here is the website for the Oregon Secretary of State to change your registration information: http://www.filinginoregon.com/pages/business_registry/update/index.html
I do know how to do the registration change. Thanks!
It is either a share or a percentage.
Some people prefer using percentage as it makes a distinction from corporations.
And, would you have any boilerplate "sale of membership interests" agreements online that you could recommend, free or for purchse?
But with the percentage, we're dealing in blocks, and that makes it harder to split up, like in our situation. If we switch to "shares" do we have to (meaning do *I* have to!) figure out common and preferred, and issue certificates, and such?
I do not have any offhand. All you are really looking for is something that transfers the interest in exchange for cash or other consideration, and deals with any liability. Usually negligence stays with the company and intentional conduct goes with the seller (this is the way it will happen anyway). While an LLC deals with most liability, it is important as the owners are still responsible for their own negligence and you want the LLC to take responsibility for that negligence in the event there is a claim.
No, it can just be 100 shares.
And remember, it is an LLC, not a corporation so the issue of preferred, common, etc. are not an issue unless they are included in the governing documents, and they are only included at the express desire of the members (the flexible nature of the entities).
Sweet. I cannot tell you what a relief it is to talk with an atty about this! And, consideration for the sale of the interests goes to the personal income of the individual member/sellers, correct?
For example, brother in law sells his 51% for $20k, he gets $20k in personal income. My husband sells his 49% for a total of $2k and that's all the income he shows, correct?
It does - but they also have a basis in this money, whatever cash or other assets they have put into the business, so make sure that a CPA or accountant is consulted for tax considerations.
Yep, I am waiting on our tax guy to call us back on that, but the brother in law put in TONS of money, and my husband brought his experience and managed the business with very little cash investment, so there will be a big discrepancy between who walks away with what.
Ok, awesome. I think I have enough to get me started. Can I come back to you specifically if I have more questions?
That happens quite frequently. A tax professional is a huge asset and may be able to assist in making this transaction more favorable after review.
You can always request me, just begin your question with "For CalAttorney2 Only ..." and put in a request, this will alert the moderator and I will get back in touch with you as quickly as possible.
My pleasure. I do wish you all the best of luck with this transaction. Thank you for using our service.
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