Sales of an LLC Interest

Question: What happens if an LLC member sells his or her interest?

Answer: LLC default rules regarding transfers of interest operate similar to those for a partnership. A member of an LLC possesses a membership interest, which usually includes only a right to distributions (i.e., an economic interest). A membership interest is deemed personal property and may be transferred freely to nonmembers or to other LLC members. This membership interest usually does not include any management rights. As such, if a member assigns or sells a membership interest, that purchaser typically receives only the right to the assigning member's distributional interest (i.e., share of profits). See ULLCA § 501. Persons who receive a membership interest are not able to participate as voting members or managers unless the operating specifically provides for such a right or they are admitted as new members by unanimous vote (or other vote provided in the operating agreement). Article 5 of the ULLCA §§ 501-503, which can be found on pages 462-63 in your text, explains the default rules for this process in more detail. Of course, the operating agreement can modify these rules.