When a limited liability company in Arizona adds or removes members or changes percentages of ownership among them, it must document this decision in writing. This is because members of an LLC have legal ownership interests that come with membership.

These interests can be enforced in court and must be clear and unambiguous if there are any legal disputes. If members are added or removed or ownership percentages changed via an oral agreement, it will be difficult to prove that these changes took place should the need arise. 

How Do You Draft a Membership Interest Agreement?

The member leaving the company and the new member should sign a membership interest purchase agreement (in the case of a sale) or an assignment of membership agreement (in the case of an assignment). This document serves as written evidence of the change in membership. Generally, the agreement should include the following:

– The LLC’s name and address

– The name and address of the buyer or assignee

– The date of the sale or assignment

– The exact membership interest that the buyer or assignee will receive

– The location of the closing

– What the parties should bring to the closing

– A statement of which state the LLC is organized under

The agreement should also:

– Discuss transfer of the LLC’s outstanding equity to specific members

– Discuss governmental consents if they are relevant to the transfer

– State whether there are pending lawsuits or other legal proceedings involving the LLC, and if so, list them

– Discuss the effects, if any, on existing employment contracts, retirement plans, profit-sharing plans, and other things that affect the LLC’s employees

– State that the LLC continues to own its trade secrets, trademarks, trade names, patents, and other intellectual property

– State that the LLC has all of the necessary licenses and has otherwise met all other requirements to operate

– List all mortgages and other assessments that pertain to the LLC, if any. 

– List any agreements and proposed transactions the LLC has with any of its affiliates

– State that this entire agreement replaces any previous agreements

How Else Should You Document a Change In Membership?

A.R.S. § 29-3202.B provides that an LLC amend its articles of organization or file a statement of change within 30 days after:

– a member-managed LLC has a change in members

– a manager-managed LLC has a change in managers or a change in members owning 20% or more of the company

In addition to amending the articles of organization, you should also amend your operating agreement. All members should sign the amendment, which should spell out all the changes caused by the sale or assignment of the former member’s interest. These include, for example, the names and addresses of the new member, the elimination of the former member, any changes in managers if the LLC is manager-managed, and any changes in percentages of ownership.

Finally, all current members should sign a resolution indicating that they approve the changes. If the operating agreement does not require unanimous consent to changes in membership and not all members approve, all current members should vote on the matter.

What If My LLC Doesn’t Have an Operating Agreement?

A.R.S. § 29-732 states:

Unless otherwise provided in an operating agreement, a member who has assigned all or part of his interest in a limited liability company is not released from his liability to the limited liability company under this chapter without the written consent of all members whether or not the assignee becomes a member. 

In other words, if the LLC does not have an operating agreement, all members of the LLC must release the member assigning their membership interest from all past, present, and future company liabilities. 

Contact Counxel Legal Firm

If you would like to talk to an attorney about drafting a membership interest agreement, contact a member of Counxel Legal Firm at 480-536-6122 or at intake@wordpress-457010-3165254.cloudwaysapps.com

This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact intake@wordpress-457010-3165254.cloudwaysapps.com or 480-536-6122 to request specific information for your situation.

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