3 Things To Do Before You Sell Your LLC Interest

Article Placeholder Image
By Guest Writer on March 29, 2012 6:58 AM

Guest post by Jennifer K. Halford, Esq.

Limited liability companies, or LLC's, are a popular choice for many business owners - especially when there is more than one owner.

This isn't surprising given the tax incentives and liability protection that an LLC can provide. And setting up an LLC on your own is possible.

Yet lately I have noticed that few business owners realize before they create an LLC that it is not simple to get out. Leaving your business is not as easy as selling your LLC interest to someone else. There are tax, securities, and personal liabilities that must be addressed.

To limit your liabilities, be sure to do these three things before you sell your LLC interest:

1. Review your LLC's operating agreement: Most operating agreements have a buy-sell provision that controls who can buy your interest and the price. If there is no buy-sell provision and you leave your business, state law may force the dissolution of the LLC.

2. Talk to your accountant : The value of your LLC interest and how the sale takes place can affect your personal tax liability. Talk to your accountant about how to minimize your liability before you sell your LLC interest.

3. Talk to your attorney: The details of the sale should be clearly stated in a written contract. An attorney can help you negotiate the sale and advise as to which details are important.

An attorney can also inform you of your personal liability for the debts of the LLC. The new owner may assume liability for the LLC's debts in the contract. However, you may still be liable for debts that you have personally guaranteed.

Further, an attorney can advise as to which securities laws are impacted by the sale and what disclosures you must make prior to the sale.

Selling your LLC interest requires thoughtful consideration. Before you sell your LLC interest, complete these tasks to protect yourself.

Jennifer K. Halford is an attorney whose practice focuses on business law and estate planning. She is also a professor at California State University, Chico, where she teaches Entrepreneurial Law.