Transferring Your Interest in an Idaho LLC

By Lane V. Erickson, Idaho Business Attorney

If you are a part owner of an LLC and you are considering transferring your ownership interest to someone else, then this article is for you. The people who own an interest in an LLC are called members. The interests that they own are called units. Units, like shares in a regular corporation, constitute the full ownership of an LLC.

There is no limit to the number of units that can be issued at the creation of an LLC. Usually they are issued in the amount of either 100 or 1000 units. Then these units are divided up between the owners of the LLC in certain amounts. For example, if there are 1000 units in an LLC, and there are four owners, each owner may receive 250 units if their ownership in the LLC is equal. There is also no requirement that ownership interest in an LLC must be equal between the members.

At Racine Olson, our premier Idaho business attorneys work with each client who is creating an LLC to help them establish the number of units and who those units will be owned by. Our goal is to assist each of our clients in setting up the LLC in the best way possible for each of the owners and for the ongoing operations of the business. Our business attorneys are experienced, talented, and knowledgeable when it comes to the creation and operation of an LLC in Idaho.

The purpose of this article is to talk about what can happen to those ownership interests in an LLC. In other words, the real question is, can an ownership interest in an LLC be transferred from the owner to someone else?

Idaho law says specifically that an ownership interest in an LLC is transferable because it is considered to be the personal property of the owner who holds it. This is specifically set forth in Idaho Code § 30-25-501.

Normally, a person who owns personal property can transfer or sell that personal property to whoever they want, whenever they want. Additionally, if a person becomes handicapped or disabled or incapacitated in some way, then the person who holds their power of attorney, or who is appointed by a court as their legal guardian now has control of that personal property.

Furthermore, all personal property can be subject to being transferred through a person’s last will and testament after they die, or if they have no written will then through the laws of intestacy. In other words, by being a transferable interest in personal property, and ownership interest in an LLC can be affected by a person’s willingness to sell it, or if they become disabled, or if they die.

If any of these things happen, which would be death disability or simply wanting to transfer or sell their ownership interest, there could still be some limitations on how the ownership interest in an LLC is transferred. The controlling document, if it exists, is the written operating agreement that was signed by all the owners when the LLC was created.

An operating agreement is a contract between the owners. It contains very specific information about who the owners of the company are, the percentages of ownership that they hold, and how those ownership interests are controlled. By being a contract, the owners all agree to each of the terms and conditions that are in the operating agreement. This is true even when it comes to how or whether an ownership interest in an LLC can be transferred as personal property.

In a well-written operating agreement, every possibility of transferring an ownership interest in an LLC is usually addressed. This includes disability, death, divorce, or just an owner wanting to sell his interest and get out of the business. It also controls how these ownership interests are treated after a transfer occurs.

In other words, suppose for example you have four owners of an LLC who each own 250 units. Everything goes along swimmingly for a couple of years. Then, one of the owners dies. In that owner’s last will and testament, they listed their spouse as the person who would receive all of their property. So now, the widow owns the 250 units in the LLC.

In this instance, if the operating agreement doesn’t say otherwise, that Widow would have the ability to do all the same things that the original owner could do. This would include making management decisions, voting on the operation of the business, and being able to have a say in the ongoing decisions of how the business moves forward. However, the operating agreement could specifically limit any owner who receives an ownership interest to a transfer of the original owners. This would include a transfer through a last will and testament, by the laws of intestacy, through a divorce, or any other way.

If there is no written operating agreement then these same items are controlled by the statutes in Idaho that deal with an LLC. Specifically, Idaho Code § 30-25-502 states that transfers of a transferable interest are permissible except when dealing with a professional entity where licensing requirements are in place. For example, if you have an attorney who owns an ownership interest in an LLC as an attorney partnership, if he were to die and his ownership interest went to his spouse, she is not a licensed attorney and therefore is limited in the ability she has to control or manage that law business.

Keep in mind that the statutes may not reference or refer or deal with all the issues that could arise when an ownership interest in an LLC is transferred to a third party. Because of this, we suggest that each LLC have a written operating agreement that deals with all these issues, and any other issues or concerns that the owners may have.

As set forth above, our Premier business attorneys have assisted many clients in the creation and operation of their LLC businesses. If you have questions or concerns about creating an LLC, or setting up an operating agreement for your LLC, we can help.

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.