How to Transfer Business Ownership for an LLC: Everything You Need to Know

Transferring business ownership is a big step, but it is necessary for many companies.

As attorneys with years of experience advising business owners in North Carolina, we’ve seen how proper planning for an ownership transition leads to better outcomes for both the current owners and the business itself.

In this article, we’ll walk through the key considerations around transferring ownership – from understanding your business structure to tax implications to finding the right buyer.

Why Transferring Ownership is a Wise Move for Many Businesses

There are several scenarios where transferring ownership makes good sense:

• Exiting founders – Maybe you started the business years ago and are ready to retire and pursue other interests. Transferring your ownership share allows you to cash out while ensuring the business continues.
• Bringing in new blood – A new owner, especially one from outside the company, injects fresh ideas, innovations, and leadership. This prevents stagnation.
• Rewarding employees – Making key employees owners increase engagement and motivation while retaining talent.
• Accessing liquidity – Existing owners can monetize their stake through a transfer, providing funds for other investments or purposes.
• Continuity planning – If an owner dies or is disabled, a transfer ensures seamless continuity of operations.

No matter the reason, proper planning makes ownership transitions smoother for everyone involved.

However, There Are Still Tax and Legal Implications You Should Consider

While transfers offer benefits, they can also create tax and legal issues, including:

• Capital gains taxes – The seller owes these on any appreciated assets sold to the buyer. An appraisal sets fair market values.
• Gift taxes – Transfers to family or others below fair market value may incur gift taxes.
• Contract reviews – If contracts require notice or consent to transfer, failing to do so could put you in breach.
• Customer notifications – Informing customers of new ownership maintains goodwill.

Thinking through these implications upfront prevents unwanted surprises down the road.

There are Two Ways to Transfer Business Ownership of an LLC in North Carolina

When transferring ownership of a Limited Liability Company (LLC) in North Carolina, there are two primary options: a partial sale or a full sale. Each method has its own set of considerations and legal requirements.

Partial Transfer: The Buyout Provision

In a partial sale, you convey your interest in the LLC to either a third party or the other members of the LLC. Transferring your ownership interest to the remaining LLC members is known as a buyout.

During a buyout, one or more members transfer their ownership interest to the other LLC members, who redistribute it among themselves.

This transaction is typically documented using a buy/sell agreement. The terms of a potential buyout are often outlined in the LLC’s Operating Agreement (OA) under a buyout provision.

To avoid uncertainty and potential conflicts among LLC members during a buyout scenario, it is essential to have a well-drafted OA that clearly establishes the buyout terms in advance.

Full Transfer: Selling Your North Carolina LLC

A full transfer involves selling the entire LLC to a new owner, who will either take over it or purchase its assets. For a full transfer to occur, every member must consent to the sale of the LLC.

As with a partial transfer, the operating agreement is the first document to examine when considering the sale of an LLC.

However, given the complexity of this type of transaction, it is advisable to seek the assistance of a qualified business attorney who can provide professional legal guidance. This can help ensure that all legal requirements are met and that you are not exposed to lingering liabilities after the sale.

How to Transfer Ownership of Your LLC

When transferring ownership of your LLC in North Carolina, it’s essential to follow these key steps to ensure a smooth and legally compliant process:

1. Review your LLC’s operating agreement – Understand the conditions and legal requirements related to ownership transfer, buy-out provisions, and sale of the LLC. If you don’t have an operating agreement, draft one before proceeding.
2. Amend the Articles of Organization – File an amendment with the North Carolina Secretary of State to reflect any changes in the managerial structure resulting from the ownership transfer. Submit the required documents and pay the filing fee.
3. Notify relevant parties – Inform clients, partners, banks, vendors, and other entities or individuals you work with about the ownership change to prevent confusion and maintain smooth business operations.
4. Obtain a new EIN (if necessary) – Check with the IRS to determine if you need a new Employer Identification Number (EIN) after the ownership transfer. Fill out the appropriate form to notify the IRS of the change.

By following these steps, you can successfully transfer your North Carolina LLC while minimizing potential complications and ensuring compliance with legal requirements.

With Proper Planning, Business Transfers Can Be Smooth

Transferring ownership of your LLC in North Carolina doesn’t have to be a headache. With the right legal guidance and a little bit of planning, you can ensure a smooth transition that protects your interests and sets your business up for future success.

At Johnson Legal in Wilmington, our attorneys are here to help you confidently navigate the ownership transfer process. We’ll work closely with you to review your operating agreement, amend your Articles of Organization, and handle all the legal details so you can focus on what matters most – your business.

Contact us today to schedule a consultation and take the first step towards a seamless ownership transfer.