How to Transfer LLC Ownership in Iowa

If you’re thinking of transferring your Iowa LLC ownership interest, there are several considerations to keep in mind. Transferring LLC ownership in Iowa isn’t as straightforward as you might expect.

For example, corporate owners, also known as shareholders, have their ownership interests vested in stocks. Stocks can easily be bought and sold. LLC owners (or members), on the other hand, need the consent of all other LLC members to transfer their ownership interest.

Corporations also require certain formalities when it comes to buying and selling stocks, whereas LLCs don’t have these rules in place, making the transfer that much more complex.

To learn more about forming an Iowa LLC, check out our Iowa LLC formation services.

First Things First: Iowa Operating Agreements

An operating agreement (OA) is a legal document that outlines the ownership structure and operational procedures of an LLC. All LLC members are bound by the OA. Iowa doesn’t require LLCs to have an OA, but having one is incredibly helpful to the success of your business.

Whether you’re the sole member of an LLC or there are multiple members, it’s a good idea to adopt an operating agreement. With an OA, you get to make certain decisions about the LLC before any issues arise. For example, a comprehensive OA will include information such as how the LLC will be managed, distributions of profits and losses, conflict resolution procedures, tax classification, and the effects of changes to ownership and management structure.

If you’re worried about drafting an OA on your own, we can help. We can provide you with an operating agreement template so that you can further customize your Iowa LLC.

Transferring Ownership of an Iowa LLC

When trying to understand how to transfer ownership of an LLC in Iowa, first look to the OA for instructions. If the LLC doesn’t have an OA or there is nothing in the document about ownership transfers, your default is Iowa law.  

The two methods of transferring LLC ownership interests are a partial transfer and a full transfer

Partial Transfer in Iowa: The Buyout Provision

If just one member wants to sell his or her LLC ownership interest, a partial transfer may be the best option. With this type of transfer, the member enters into a buy/sell agreement with the other members and sells his or her interest to them. The transferred interest is then divided between the remaining LLC members. 

When it comes to structuring the buy/sell agreement, look to the LLC’s OA. A well-drafted OA will have instructions for the buy/sell agreement. This will hopefully avoid any disputes between the LLC members if the terms have been set in the OA. 

Full Transfer: Selling Your Iowa LLC

Selling your Iowa LLC to a third party may be a good option if multiple members want to get out. Like with a partial sale, you need a buy/sell agreement with the purchaser. This legal document will set out the details of the transaction, including whether it’s a purchase of the whole LLC or just the assets. Again, consult the LLC’s OA to learn about the terms of selling the LLC. 

The sale of an entire LLC can have significant financial, legal, and tax ramifications, so it’s wise to hire a business attorney to walk you through the process. 

Other Possible Issues

There are a few unexpected scenarios that may lead to an LLC ownership transfer. 

Death of a member 

A member’s death changes the ownership interests of an LLC. Typically, the deceased’s interest goes to his or her next of kin, which is usually a spouse or child. However, all the person inherits is a beneficial interest in the LLC, such as a right to LLC profits, but no management interest.  

Often the best option in this scenario is for the remaining LLC members to purchase the inheritor’s interest through a partial transfer. 

Dissolution and reformation 

If multiple LLC members want to sell their membership interests, it may be easier to dissolve the LLC entirely and start a new one. This way, those members who want to leave can take their investment and new members can have the opportunity to join. 

Do you need to file a change of ownership paperwork?

Iowa doesn’t require you to amend your formation documents if the LLC ownership interests change. 

Conclusion

If your Iowa LLC has an OA, transferring ownership interests may be a smooth process. Otherwise, this could be the time to recruit some legal help from an experienced business attorney. 

If you’re just starting an Iowa LLC, we offer both LLC formation services and OA templates. Let us know how we can help you succeed.