LLC Share (Membership) Purchase Agreement

An LLC Purchase Agreement is a document used when a member of an LLC wants to sell their interest to another party. It can also be used if the LLC only wants to sell a portion of their interest as well. LLC stands for Limited Liability Company.

What Is an LLC Share Purchase Agreement?

The stock purchase agreement is used when a member of the LLC is leaving, whether willingly or forcibly. Either way, they will need a way to dispose of their interest. This is when a purchase agreement comes in handy.

This fillable purchase agreement template will help the LLC know where the interest is going and why it is being sold. Unlike most stocks in corporations, interest in an LLC cannot be gifted or sold. They can only be transferred. Although the document is called a purchase agreement, the shares are really being transferred for a fee to a new person.

When an LLC Share Purchase Agreement Is Needed

An LLC Share Purchase Agreement should be used in any situations where money is being exchanged for the relinquishment of an interest in an LLC. So, whenever someone is giving up their interest to someone who is paying for it, a purchase agreement will need to be drafted and signed.

A purchase agreement is always a good idea because it protects both the seller and buyer. It also protects the company as a whole. The good thing about these purchase agreements is that they are often short and easy-to-read documents.

The documents will also ensure that the transaction is meeting state laws. Each state governs the laws for purchase agreements separately and there are no federal laws.

How to Use an LLC Share Purchase Agreement

Use our template anytime you’re transferring interest. This could be for several reasons such as:

  • An owner is selling the business
  • Members have voted for a new member to join the company
  • One member becomes disabled, divorces, or dies
  • A member wants to leave the company

Step 1. Consult the Operating Agreement

When an LLC company starts, it will always form an operating agreement to help them run the company. Most people will consult this during a purchase agreement because it will state the best practices and protocols.

A lawyer is often involved in this step to help check the operating agreement. Sometimes the operating agreement will need to be changed when a transfer or new member is added to reflect the new protocols.

Transferring an LLC can have consequences for both parties if not done right, so they should always be done in accordance with the operating agreement.

Step 2. Check State Laws

Most states will require you to notify all members of the LLC that you are transferring your interest. Everyone in the company will need to be reached out to and well-informed of the changes. Some states even forbid the transfer process entirely.

If this is the case, your LLC will need to be dissolved and everyone will get what they are entitled to. The members can always form a new LLC if they want. Some people will request a buyout or sales agreement to complete this process.

Sometimes when someone wants to transfer or move out of the LLC, the remaining members can’t agree on provisions. A judge or civil courts will then have to set the interest prices. A judge almost always has to do this if there was no original operating agreement.

Without federal laws, each state’s laws need to be checked thoroughly during a purchase agreement. Contact a lawyer if you have any questions or doubts.

Step 3. Negotiate the Terms

Anytime there is a transfer or transaction, the buyer will want to negotiate with the seller. Remember that the sale prices and membership interest price affect every LLC member, so they often want to be part of the negotiation as well.

Some people also negotiate a buy-sell agreement. This way if something happens to the person who owns the interest, there are clear protocols on what will happen should they leave the business. The operating agreement might also have a buy-sell provision that needs to be consulted.

Negotiations are often better handled when they go through a lawyer. This way all parties get what they are entitled to and prices are more likely to be fair.

Step 5. Draft the Purchase Agreement

After you have most of the information about the sale and protocols, you should draft an agreement. Every agreement looks a little different, but they should all include the interest percentage, sales price, date of transfer, and terms of transfer.

It will also need to be signed and notarized.

What Information Should Be Included in the Agreement?

Every good agreement will have a few items that make it complete.

Seller, Buyer, and Company information

The person transferring their interest will usually be listed in the first section. There should also be a brief section on the buyer and the information for the company.

Interest Percentage

This will show the percentage of the interest that is being sold and from what company.

Purchase Price

This is the price that the buyer is getting the interest for and how they are paying it.

Representations and Warranties

This is a clause stating that all of the information the seller has listed is correct.

Contingencies

Contingencies are anything that might void or change the agreement.

Closing Date

The closing date is important because it tells the buyer and seller the day the interest is exchanged.

Filling Out the LLC Share Purchase Agreement Template

Filling out the template should be done in a few steps.

Step 1. Identify the parties

The first section is where you will put the names and addresses of both the seller and the buyer. You will write the date that the agreement is taking place.

Step 2. State the interest amount

Write in the percentage of interest that the seller currently owns and what company it’s part of.

Step 3. Indicate the sale of membership interests

You will either check that the percentage they are transferring is all of their interest or just a portion. Write in the amount of the portion if it’s not the full amount.

Step 4. Indicate the purchase price

Write in the amount the interest is being sold for.

Step 5. Fill in the closing date

Write in the date that the deal is closing.

Step 6. Indicate contingencies

Check one of the boxes stating that there are no contingencies or write in a specified precedent.

Step 7. Sign and Date

The buyer and seller need to sign, print, and date that they have read and agree to the agreement.

Published: Jun 25, 2021