A limited liability company (LLC) is a popular type of business organization used in California. LLC owners receive the benefit of protection against personal liability for organizational actions of the LLC. Those who wish to assign economic interests and change the ownership of the LLC should review California law to ensure that any change in ownership is lawful.
Review the economic-interest assignment rules in both the articles of organization and operating agreement. An economic interest is an interest in the profits of the LLC. It is separate from management or membership interests but allows the interest holder to receive shares of money made by the LLC. Every California LLC must file articles of organization when forming the company. An operating agreement determines individualized rules for your particular LLC. According to Section 17301 of the California Corporations Code, the articles of organization and operating agreement may prescribe the rules for the assignment of economic interests.
Follow the rules in the articles of organization or operating agreement if the rules for the assignment of economic interests exist. Otherwise, California LLC law provides that a member with an economic interest can assign his economic rights to another person. However, the person obtaining nothing but economic rights does not become a member or owner with voting or management rights.
Check the articles of organization and LLC operating agreement for any rules on the assignment of membership interests. Section 17301 of the California Corporations Code also states that the articles of organization and operating agreement may govern the assignment of membership interests. Follow any existing membership modification rules to change ownership of an LLC.
Assign the membership rights by conducting a vote of the members not assigning their membership rights. The LLC conducts a vote if the articles or operating agreement have no rules for interest assignments. According to Section 17303 of the California Corporations Code, the members may induct a new LLC member by majority vote. The new member then obtains the rights and powers of a member upon the majority vote.
Change the required list of economic interest holders. Section 17058 of the California Corporations Code requires the LLC to maintain a list of the full name, address and economic interest of all interest holders in the LLC.
Modify the articles of organization and operating agreement to reflect any changes of personal interests in ownership of the LLC. An LLC does not have to file operating agreements with the state. However, file any changes of the LLC articles of organization with a "Limited Liability Company Certificate of Amendment." As of February 2010, the fee was $30. Pay by check payable to the Secretary of State and send the check and form to the following address:
Secretary of State Document Filing Support Unit P.O. Box 944228 Sacramento, CA 94244-2280 916-657-5448 sos.ca.gov
Use a written contract to reflect a change in any ownership interests. Although the LLC members do not have to file any contracts with the state, a writen agreement can help to prevent legal disputes. Contact the lawyer who set up the LLC or any other California business lawyer for assistance in writing a contract.
Always inform the other members when assigning an economic or membership interest. All members should be aware of the assignments even if the articles of organization or operating agreement do not require such a notice. Keeping all members informed helps to avoid disagreements among the members.
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