Do All Members of an LLC Have to Sign the Purchase Contract?

The purchase of an ownership interest in an existing limited liability company can be done in one of two ways: the buyer can purchase new membership shares issued by the LLC or purchase the shares of an LLC member. In either situation, a written contract should be prepared to effect the purchase. Whether all or only some members of the LLC must sign the contract depends on the terms of the purchase, as well as any prior agreements between the members.

State law generally governs an LLC and its members, except in situations where the members have prepared an agreement regarding their rights and obligations to each other and the LLC. Generally referred to as an "operating agreement," LLC members use such agreements to control significant changes to the LLC such as the issuance of new membership shares or the sale of a member's ownership interest. The LLC operating agreement must always be reviewed to determine what requirements must be followed regarding a contract for purchase of an ownership interest in the company. For example, if the agreement requires the unanimous consent of all existing members for such a purchase, the purchase contract should state the members' consent to the purchase and include each member's signature.

If the LLC members did not make an operating agreement, the default rules of the state's LLC law will govern. For example, the LLC law in most states allows an LLC member to transfer his interest in the LLC with regard to economic rights -- that is, the right to receive profits or losses from the LLC's business operations. However, the member cannot transfer his right to participate in the management and control of the LLC, unless the other members agree to allow such participation. In this situation, if the buyer expects to have the right to participate in the LLC management, the purchase contract will have to include such a provision and be signed by all members.

An operating agreement may include other provisions that affect a member's right to sell his LLC interest, such as a right of first refusal or first offer. If the operating agreement includes a right of first offer, the member intent on selling his LLC interest must give the other members the opportunity to match any offer to purchase his LLC interest. If a right of first refusal exists, the selling member must first offer his LLC interest to the other members before attempting to sell it to a third party. With either a right of first refusal or first offer, any purchase contract involving the sale of an LLC interest should be signed by all members with a provision that stating that the members declined to exercise their rights to purchase the LLC interest.

Purchasing an ownership interest in an existing LLC effectively makes the buyer a business partner with the LLC members. Even if the law or operating agreement permits the sale without all members signing the purchase contract, as a practical matter it is prudent to obtain their signature to confirm their approval of the sale. Without a clear indication of the other members' approval, the buyer may find that his purchase results in a lawsuit.