LLC Membership Interest Purchase Agreement

What is a membership interest purchase agreement?

A membership interest purchase agreement is a legally binding contract through which a current member of a limited liability company transfers their membership interest to a third party. In other words, this agreement is being used to establish terms and conditions for a sale-purchase of the LLC’s membership interest between two parties.

An LLC interest purchase agreement is a simple document that includes the following information related to the transfer:

• details of the parties involved;
• name and address of the LLC;
• payment arrangement (i.e., purchase price, payment schedule, and method);
• mutual representations and warranties;
• confidentiality obligation clause; and
• general provisions (e.g., applicable law, severability),

The parties involved in this agreement are the seller and buyer. A seller is always a person who owns membership interest in the LLC. A seller’s membership interest could be confirmed by the LLC’s operating agreement or articles of organization. A buyer is a person who is willing to purchase membership interest and could be a business, legal entity, or individual.

This template could be used to transfer a membership interest only in the LLC that is registered within the United States.

How to draft an LLC membership purchase agreement template?

Drafting a membership purchase agreement template might be a daunting task even for lawyers. All the provisions in the contract should be clear, precise, and straight to the point.

The law does not define the exact list of clauses a member interest purchase agreement shall have. Though inclusion of certain clauses is essential for a legal document to be complete and legally binding. Below we made a list of key elements you have to include in your sale-purchase agreement:

Details of the Parties

The text of every LLC membership purchase agreement should include:

• full legal names, addresses, and contact details of both seller and buyer;
• full name, address, and state where the LLC was registered;
• reference to the existing LLC operating agreement, if any;
• the date of signing or effective date; and
• parties’ signatures at the end of the document.

Details of the Membership Interest

Every membership interest purchase agreement shall define what is being sold, in particular:

• specify the total percentage the seller owns in the LLC;
• clarify whether the full membership interest is being transferred or only part of it (e.g., a seller owns 50% in the LLC but wishes to transfer only 20% from its whole membership interest).

If a seller transfers their whole interest in the LLC, in that case the seller ceases to be the LLC’s member. Which is not the case if a seller makes a partial transfer of their interest.

Seller’s and Buyer’s Representations and Warranties

Every solid LLC membership purchase agreement sample shall contain the list of seller’s and buyer’s representations and warranties.

A representation is a statement of fact made by one party to another. For example, a seller represents that he is an owner of a membership interest in the LLC. This fact could be confirmed by the LLC’s articles of organization.

A warranty is a promise that certain conditions are or will remain true. For example, a seller warrants that there are no current disputes involving a seller’s membership interest in the LLC. If a buyer finds out later that this is not true, a seller would need to compensate for that.

Usually, under an LLC membership interest purchase agreement, a seller represents that:

• a seller has a valid title to the membership interest;
• that the title is free from any liens, claims, or pledges; and
• that there are no current legal proceedings involving membership interest.

In its turn a buyer shall represent and warrant that:

• a buyer has the legal capacity to purchase the membership interest;
• a buyer checked the LLC’s financial information;
• a buyer accepts all risks related to the LLC’s business and owning a membership interest.

Purchase Price and Closing Date

The text of every LLC membership purchase agreement shall include a total purchase price the buyer shall pay. Apart from that, the contract should also define:

• applicable payment model (e.g., full sum paid at once on a specific date or payment schedule);
• applicable payment methods (e.g., cash, bank transfer);
• closing date (i.e., the date by which the buyer shall finalize all payment obligations in full before the seller).

A solid member interest purchase agreement should also address the exact venue, date, and time when the finalization of the deal takes place, also known as the closing. It is common to make the closing remotely by exchanging electronically signed documents between the parties.

TOP 3 Essential Tips Before Signing a Membership Interest Purchase Agreement

If you plan to purchase a membership interest in the LLC, you have to do some preparatory work before even entering any agreement. Below we made a short list of the most essential things a future buyer should check:

• Financial Accounts: Are you aware of the LLC’s cash flows, current debts, and financial obligations? Even though a seller may reassure you that everything is just fine, always check the company’s financial information first. Ask for their profit and loss statements, balance sheets, and tax filings. Do not hesitate to order additional accounting or financial advice before signing.
• Encumbrances of Shares: The membership interest in the LLC shall be clear of any liens, pledges, or other third parties’ rights. For instance, shares are used frequently to secure obligations of the seller under contractual obligations with third parties. Even if there are some encumbrances, do not rush to exit the deal. Perhaps the seller may easily mitigate that risk and remove the obstacles in question.
• Restrictions in Corporate Documents: If a seller is a party to an existing LLC’s shareholder agreement, there might be certain restrictions in place related to the transfer of shares. For instance, a seller may first seek a prior approval from other LLC members. Or, a seller might be required to offer their shares first to the other members or the LLC before selling to third parties. If a seller fails to comply with any such restriction, the transfer under a membership interest purchase agreement might be considered void. As a result, your rights as a buyer are also under risk. Always ask sellers to present any existing shareholder or LLC’s operating agreement in place to check for any available limitations.
• Public Image: Last but not least, make your own investigation about the LLC you are planning to acquire a membership interest in. If there is some negative information in mass or social media, it may potentially impact the LLC’s public image and, eventually, profits and business in general.

How to customize a legal document template at Faster Draft?

To get a personalized membership interest purchase agreement, follow a few easy steps below:

1. Click the button “Create Document.”
2. Answer simple questions in the form.
3. Select a document’s format—LLC membership purchase agreement PDF or Word.
4. Make a payment.
5. E-sign, download, print, and use a customized legal document template in minutes.