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We have a 2-member LLC (the members are my husband and his

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brother). Organized in Oregon...
We have a 2-member LLC (the members are my husband and his brother). Organized in Oregon and operating there as well. They want to sell out completely to a family friend, who will be going in with 3 others. The current membership percentage is 51/49. The new percentage will be 51/xx/xx/xx (I don't know the split between the 3 smaller percentage-holders yet).

My first question is, my understanding is that we are selling MEMBERSHIP INTERESTS, not "the business" per se. Is that correct?

My next question is, can you help guide me though the creation of sales agreements and review the documents I create? Obviously, it won't be like a regular client situation, but I know just enough to know that I need a little help with this!

Thank you.
Tracey Roberts
Submitted: 4 years ago.Category: Business Law
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Answered in 25 minutes by:
8/1/2013
Business Lawyer: CalAttorney2, Attorney replied 4 years ago
CalAttorney2
CalAttorney2, Attorney
Category: Business Law
Satisfied Customers: 10,244
Experience: I am a businesses law attorney, with experience advising and representing owners and investors.
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Attorney William B. :

Dear Customer, thank you for choosing Just Answer. I would like to assist you today.

Attorney William B. :

You are correct, the members would be selling their membership interests, not the business (the LLC is an independent entity).

Attorney William B. :

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%.

Attorney William B. :

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.

JACUSTOMER-hyinh2ua- :

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?

JACUSTOMER-hyinh2ua- :

And are they called Shares in an LLC?

Attorney William B. :

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

JACUSTOMER-hyinh2ua- :

I do know how to do the registration change. Thanks!

Attorney William B. :

It is either a share or a percentage.

Attorney William B. :

Some people prefer using percentage as it makes a distinction from corporations.

JACUSTOMER-hyinh2ua- :

And, would you have any boilerplate "sale of membership interests" agreements online that you could recommend, free or for purchse?

JACUSTOMER-hyinh2ua- :

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?

Attorney William B. :

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.

Attorney William B. :

No, it can just be 100 shares.

Attorney William B. :

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).

JACUSTOMER-hyinh2ua- :

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?

JACUSTOMER-hyinh2ua- :

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?

Attorney William B. :

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.

JACUSTOMER-hyinh2ua- :

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.

JACUSTOMER-hyinh2ua- :

Ok, awesome. I think I have enough to get me started. Can I come back to you specifically if I have more questions?

Attorney William B. :

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.

Attorney William B. :

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.

JACUSTOMER-hyinh2ua- :

Wonderful. TY!!

Attorney William B. :

My pleasure. I do wish you all the best of luck with this transaction. Thank you for using our service.

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