Legal Question in Business Law in California

You create an LLC Membership Interest Transfer Agreement, but there are other factors to consider such as outstanding contracts ( especially for personal services), any debts or obligations unless dad is absorbing all those, the business bank account, the EIN which is likely supported by your SS number. Also, case depending you may need to make an amendment with the state, but not in most cases.

You guys would be well-advised to consult a lawyer to assist so you know it has been done the right way. If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.

Kind regards,

Frank

www.LanternLegal.com

866-871-8655

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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

That depends on the terms of your LLC operating documents, but generally it is done by a transfer of the shares of the company. Without seeing the LLC documents, however, there is no way to be more specific than that.

There are a few different ways to do this, and they have tax and liability consequences. Selection of the best way is dependent on the past operations, tax basis, fair market value, who you have contracts with and how they are structured, your folks estate planning and other issues.

Mechanically, you could simply transfer the membership interest to him, and determine whether changes are needed in the Operating Agreement and the Statement of Information. Are you selling or gifting the interest? You will also need to determine how to advise customers and vendors of the changes.

Alternatively you could transfer the operational assets to him or a new LLC he forms, and dissolve the old one. If there are liabilities in the entity he prefers not to assume, this may be appropriate.

Obviously there are other factors to consider. Your question is deceptively simple because there are many factual, tax, financial and personal implications of your choice.

I've read the three previous answers, and while I agree with them in general, I'd like to try to sharpen the focus in a couple of areas.

First, whether you'll benefit from paying a lawyer depends upon the complexity of the LLC's organization and operations and your comfort level in dealing with business management. If the LLC is relatively simple and you are sophisticated businessmen, you are unlikely to need or want a lawyer.

Next, the most obvious formality to be handled is notifying the California Secretary of State of the changes. Looks like you'll need to file a new Statement of Information, Form LLC-12, but perhaps an LLC-10 if your changes go beyond what's provided for on the LLC-12. Read the instructions furnished with the forms.

Next, think about places where the outgoing owner has signed something. The most obvious is the bank signature cards, so a trip to the bank to change signatories is in order. However, there may also be credit applications and other kinds of accounts with lenders, suppliers, landlords, etc. where paperwork needs updating.

If you have given any personal guarantees (think about suppliers and landlord, for example), consider negotiating your way out of these, perhaps by substituting your father as the new guarantor.

If there are employees, obviously the new owner needs to be introduced. The same may be desirable with customers.

LLCs generally don't have "shares" (although it is theoretically possible).

Remember that your ownership interest in the LLC has a "basis" (value for reckoning capital gain or loss upon its transfer to another owner) and that selling it or giving it away will result in a capital gain or loss -- maybe zero if you sell for exactly the current tax basis.

Make sure that your bookkeeping and tax filings are current and will be understandable by whomever will be taking them over.

Most LLCs have almost everything "in the business name" except for SoS filings and personal guarantees, but not always -- so try to think of anything that's in your name rather than the LLCs, and get it changed or otherwise handled.