If an LLC member wishes to transfer their ownership rights to a different entity for any reason, they'll need to submit an Assignment of LLC Interest. This document will be a way for the member to communicate this intention to other LLC members.
You can use an Assignment of LLC Interest in situations where an LLC member wishes to secure a loan, settle a debt, or leave their LLC.
In such cases, this document will serve to transfer the member's interest – which can be done wholly or partially – according to state laws and the governing documents of the LLC in question.
Since the document's content takes precedence over the title, an Assignment of LLC Interest doesn't necessarily have to bear that name. It's also called:
LLC members may decide to assign their interest for several reasons. One of the more common reasons for assignment is providing collateral for a loan.
Another reason might be if the member needs to settle a debt, in which case the assignment remains effective while the debt is present.
Finally, a member can assign interest to their legal heirs. In this case, the assignment becomes valid upon the member's death.
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An Assignment of LLC Interest should clearly outline the rights and limitations as they apply both to the assignor, i.e., the LLC member transferring interest, and the assignee, i.e., the party receiving interest. For this reason, the document should be detailed and carefully crafted. State laws can potentially restrict assignments, and documents contrary to those laws can be subject to invalidation.
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An Assignment of LLC Interest is a legally binding document, which means all parties should ensure they understand and agree to all terms within it before signing.
Once the Assignor and Assignee confirm that all information in the document is correct, both parties will need to sign the document to make it valid.
An Assignment of LLC Interest defines the scope of interest an LLC member will transfer to another party for other members of the LLC.
After signing the document, you will execute the interest transfer. Both parties should keep their copies of this document for the record.
LLC members often have two roles within the LLC: as interest owners and managers. When a member decides to assign interest to another party, the transfer won't affect that member's management role.
Should an LLC member wish to leave the LLC management, they'll need to resign from that role in an action separate from the interest transfer. At that point, they’ll determine their replacement in the management following the LLC operating agreement and the state laws.
An LLC member can transfer their interest fully or partially. Full transfer means that the Assignee receives interest identical to that previously held by the Assignor.
In the case of a partial transfer, an LLC member will assign either a portion of their interest or only certain rights to the Assignee.
In most states, the Assignee won't have the right to participate in the operations of the LLC in question. The Assignee is also protected from the Assignor's liabilities, but this may vary according to the state. For example, the Assignee receives the liability in Florida and California.
If the Assignee is introduced into the LLC as a member following the transfer, the Assignee's limitations and rights will be the same as the Assignor's.
Most states will not prohibit any LLC members from assigning interest. Likewise, in most states, interest transfer won't mean that the Assignor relinquishes their right to vote or continue their involvement in LLC management.
Texas is an exception since that state's law mandates that the Assignor must forfeit their LLC membership upon transfer.
Notifying all LLC members of an assignment is mandatory, and in some states, you can only enforce the document upon approval by all LLC members.
LLC members can decide whether the Assignee will become a member if the Assignor wishes to resign their position. The interest transfer doesn't guarantee that the Assignee will automatically become an LLC member.
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