Assignment and Transfer of Membership Interest
An LLC owner (called a member) can transfer an ownership interest (called a membership interest) by complying with the transfer provisions within the LLC’s operating agreement and state law. An assignment is one of the key documents a member must prepare to officially transfer a membership interest to a transferee.
What is the Purpose of an LLC Interest Assignment?
An assignment—sometimes titled assignment and transfer or assignment and assumption—serves as a written record of a member’s transfer of an LLC interest to a transferee. It is comparable to a deed that transfers real estate, but an assignment instead transfers to a new owner (the assignee or transferee) some or all of an LLC member’s ownership rights in the company. Like some deeds, an assignment may include the member’s guarantee that he or she actually owns the interest being transferred and has the right to transfer it.
An LLC interest assignment must comply with any transfer terms, conditions, or restrictions in the company’s operating agreement. For example, an operating agreement may require other members’ consent to the transfer or limit the ownership rights that members are allowed to transfer.
An LLC owner may also prepare an assignment when offering an ownership interest as security for a loan. In that situation, the lender is the assignee and usually claims the interest only if the member fails to repay the loan. Assignments of LLC interests pledged as collateral are subject to additional laws and are not the focus of this article.
What LLC Interests Do Assignments Transfer?
A member who creates an LLC assignment customizes the assignment to the precise ownership interest the member wishes to transfer. LLC ownership interests can generally be separated into two basic interests:
- Economic rights. A member’s economic rights (sometimes called transferable interest) include the member’s allocation of the LLC’s profits and losses and the member’s right to receive distributions from the company.
- Membership rights. A member’s membership rights—which are typically defined in the operating agreement—include the member’s right to vote on important matters, participate in the LLC’s internal affairs, and join in the management of the company (if it is member-managed).
An assignment can transfer the member’s economic rights (in whole or in part)—in which case the transferee receives a right to LLC distributions but no right to vote on LLC matters. Or, an assignment can transfer the member’s entire interest in the company. A transfer of all membership rights typically requires other members’ approval, formal admittance of the transferee as a new member, and a separate joinder agreement under which the new member accepts the LLC’s operating agreement.
What Information is Included in an LLC Membership Assignment?
An assignment must identify the transferor and the transferee, the company, and the specific interest being transferred. It should state whether the transfer applies to all or part of the transferor’s interest and whether the transferee will receive all membership rights or an economic interest only.
Assignments often also include:
- A reference to the operating agreement’s authorization of the transfer;
- A statement that the transfer has been approved under the operating agreement’s approval standard; and
- The transferor’s warranty that he or she actually owns the interest and that the assignment does not breach any other agreements.
An assignment must be signed by the member who makes the transfer and—depending on its terms—may also be signed by the transferee and on behalf of the LLC.