Membership Transfer Agreements for a Limited Liability Company
Updated: Jul 22, 2021
What is the difference between Purchase Agreement and a Membership Transfer Agreement?
“Purchase Agreements” are applicable to corporations because the consideration there is for the shares of the company that a “shareholder” is selling. Limited Liability Companies have “members” ergo sell “membership interest” in an LLC.
What are common provisions in a Membership Transfer Agreement ?
The rudimentary form of the contract itself is not too complex. Of course, a Non-Compete Agreement or another conditional provision can be incorporated into the sale. In a nutshell, the following provisions are common and essential in a Membership Transfer Agreement:
1. Agreement to Sell and Purchase the Membership
2. Closing Provision
3. Representation and Warranties of Seller
4. Representation and Warranties of Buyer
5. Indemnification Clause
6. Merger Clause
Limited Liability Companies come in many sizes. Some are worth millions whereas others can be transfers in the magnitude of $75,000~ $150,000. Both cases, it is important to consult with an attorney to properly draft your agreement.
What else is included ?
A promissory note and the membership certificate. I will make an analogy. When you purchase a residential property, there are three essential documents that are included in the transaction: (1) Note (2) Mortgage; and (3) Deed. The Membership Transfer Agreement is like your Mortgage. The Promissory Note is like your Note; and the Membership Certificate is like your Deed. The Promissory Note is the governing instrument that guarantees payment. Your Membership Transfer Agreement lists the essential details to the transfer itself. And, of course, the Membership Certificate signifies your interest ownership in the LLC.
Should I retain counsel for to assist me during a Membership Transfer Agreement ?
I recommend it. Each business is subject to unforeseen circumstances. At times disputes arise from the transfer itself. Thus, to have a solid transfer, you should consult with an attorney to make sure that the sale is mutually satisfactory and final.
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