How to Transfer LLC Ownership in Alabama

First Things First: Alabama Operating Agreements

When you formed your Alabama LLC, you likely created an Alabama operating agreement (OA). This document provides the structure for your company, detailing the working relationship between the LLC’s members and explaining the financial and management rules under which the company operates.

Among the topics typically covered in an LLC’s Operating Agreement are the owners’ percentage of ownership, rights, responsibilities, and shares of profit or loss. In addition, Operating Agreements should detail what happens in the event that one of the members leaves the company.

As of 2015, the state of Alabama doesn’t require LLCs to have a written operating agreement and accepts oral or implied agreements. However, most companies create written Operating Agreements when the business is formed.

If your LLC has an Operating Agreement, it should include directions for the transfer or sale of ownership in the LLC. Follow those directions to handle your transaction. If those directions aren’t included in your Operating Agreement, you must default to Alabama law for the transaction.

You have two choices for transferring an interest in an LLC without legally dissolving the company. You can conduct a partial sale, also known as a buyout, or you can conduct a full entity sale.

If you’re just forming your LLC in Alabama, we provide a very helpful operating agreement template to help you get started right.

Partial Transfer in Alabama: The Buyout Provision

One way to transfer LLC ownership in Alabama is to have the existing members of the LLC buy out the partner who wants to leave. The leaving partner’s ownership interest is then split among the remaining LLC members.

To handle the transfer of ownership this way, you need to create a buy/sell agreement. Your operating agreement should contain instructions for this agreement. Your comprehensive, detailed Operating Agreement helps you to avoid potential discord among the members of your LLC and gives all members an opportunity to assert their rights appropriately.

Full Transfer: Selling Your Alabama LLC

Another option for transferring LLC ownership in Alabama is selling your entire company to a third party. Your buyer may want the whole business, or your buyer may only be interested in your company’s assets. Again, your OA is your guide if this is the route you choose.

If you plan to sell your entire LLC, all members of the business must consent to the sale. Without full consent, the sale cannot occur. Selling an entire LLC is a complex process, and you should consider consulting an attorney to help with the transaction to make sure all the details are handled legally and correctly.

Other Possible Issues

Several other issues can arise that involve the transfer of LLC ownership.

Death of a Member

Should a member of your LLC die, their interest passes on to that member’s spouse or children, depending on previously made arrangements. However, whoever receives membership in an LLC due to death only receives the deceased person’s percentage of profit and other benefits. The inheritor of a membership interest in an LLC has no right to assert any management interest.

Due to those legal considerations, the best option in this situation is usually to buy out the next of kin who has inherited the LLC membership, using the partial transfer option outlined above.

Dissolution and Reformation in Alabama

What if you have several members who want to leave the LLC at the same time, all transferring their ownership? You could do several partial transfers, but sometimes that kind of transaction is more stressful or complicated than it’s worth.

In this case, a simpler option is often to dissolve the LLC and form a new one. This way, members who want to leave can take their investments with them. You can also easily allow new members to join your LLC with this option.

File proper change of ownership paperwork with Alabama

The state of Alabama requires you to keep it notified when you make major changes to your business. Make sure that you file a Domestic LLC Amendment form with the Alabama Secretary of State’s office to register your business’s changes with the state.