How to Buy a Membership Interest in an Existing LLC

By Anna Assad

A limited liability company is owned by its members. The unique business structure allows the owners to keep their personal assets from actions by creditors of the LLC. If you want to become part-owner of an existing LLC and share in its profits, you'll need to buy a membership interest. You'll need consent from the current members to buy an interest, and your control over the business might be limited.

A limited liability company is owned by its members. The unique business structure allows the owners to keep their personal assets from actions by creditors of the LLC. If you want to become part-owner of an existing LLC and share in its profits, you'll need to buy a membership interest. You'll need consent from the current members to buy an interest, and your control over the business might be limited.

Step 1

Get approval from the LLC's members. You must have approval from all members of the LLC.

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Step 2

Determine what your rights will be after the purchase. You may only have rights to a former member's profits and no say in the company's affairs. The operating agreement should specify your rights, but you'll also need to check the LLC laws in your state.

Step 3

Check the LLC's operating agreement. The agreement may place additional restrictions on or requirements for membership interest purchasing.

Step 4

Agree on a price for the interest. The value of the membership is contingent on many factors, including the LLC's current health, growth potential and market, and may be difficult to set because of a lack of comparison sales information. Contact a business valuation specialist for help setting the price.

Step 5

Have an interest purchase agreement prepared. The agreement legalizes the sale and sets all terms and conditions, including price, and should be prepared in accordance with any requirements in the LLC's operating agreement. Have an another party who's not a member of the LLC and has knowledge of LLC laws, such as an attorney, draft the agreement. Any wording errors can result in a sale with the wrong terms or price.

Step 6

Ask the LLC to open a capital account for you. LLCs use capital accounts to track and keep record of members' contributions to the business. In event the company is dissolved, the capital accounts help members divide profits. A capital account is part of the LLC's internal records and not a separate financial account at an institution. Confirm the other members' capital accounts have been adjusted to reflect the correct proportion of ownership interest with the new member added.

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References

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