LLC Joinder Agreement
An ownership interest in an LLC is generally considered an LLC owner’s property. LLC owners (called members) can transfer their ownership interests (called membership interests) as long as the transfer complies with the LLC’s operating agreement and state law. An LLC member must prepare transfer documents to properly transfer an LLC interest to another person. An LLC joinder agreement is a key transfer document when a transfer adds a new member to an LLC.
What is an LLC Joinder Agreement?
An LLC joinder agreement is one of the transfer documents required when an LLC member transfers a membership interest to a transferee who will become a member. A joinder agreement allows the newly admitted member to “join” in LLC’s operating agreement and governance structure as a prerequisite of admission to full membership.
Another transfer document—called an LLC membership assignment—transfers ownership of the LLC interest to the transferee. The joinder agreement then adds the transferee as a member of the company—with voting rights and other privileges of membership.
When does an LLC Owner Need to Create a Joinder Agreement?
Ownership interests in LLCs can be divided into economic rights and rights associated with membership. Economic rights include the right to receive distributions and to participate in the allocation of the company’s profits and losses. Membership rights allow the member to vote on company matters and participate in the LLC’s internal affairs as a member.
Some LLC interest transfers give the transferee only economic rights. The transferee receives the right to distributions but has no right to vote on important LLC matters. When a transferee will also receive membership rights, he or she must be formally admitted as a member under the terms of the operating agreement. That usually means the other members must consent to the transfer and the new member must sign a joinder agreement.
What is the Purpose of an LLC Joinder Agreement?
A transferee who signs a joinder agreement acknowledges that the LLC has an operating agreement in place. The member agrees to be bound by the operating agreement the same as if he or she had been a member all along. The joinder agreement avoids the need to sign an entirely new operating agreement. It also protects existing members by ensuring that new members are added only if they accept the operating agreement rules that are already in effect.
Transfers of LLC interests must always comply with the LLC’s operating agreement. A joinder agreement must be prepared so that the new member’s admission satisfies all of the operating agreement’s requirements. A joinder agreement that contradicts a transfer restriction or admits a transferee under terms inconsistent with the company’s operating agreement will not successfully transfer membership rights to the transferee.