Assignment Of Llc Interest

Generally state law prohibits an assignee from participating in business decisions or the operations of the LLC unless the articles or operating agreement provides otherwise.

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Assignments are addressed by state law, and even though the specifics are left to the individual LLC's articles of organization and operating agreement, state law sets out the basic requirements for handing off a member's share of an LLC.

An LLC member may decide to assign a percentage of his membership interest to a lender as collateral for a loan.

Although it could take several forms, the effect is that the member giving up his interest in the LLC is essentially transferring all of his rights to the remaining member.

However, the mechanics of the transfer may differ under state law, as may the consequences.

The member assigns all or part of his interest until the debt is satisfied from the proceeds of the business.

State LLC laws provide for assignment of either whole or partial interests in an LLC formed in that state subject to any prohibition or restrictions presented by the operating agreement or articles of organization.

Courts have ruled that even a de minimus amount determined in any way to be compensation for the partnership interest will cast the transaction as a sale.

Unlike corporate shareholders who are usually one step removed from the action, LLC members often have a hand in the day-to-day operations of the company.

The member giving up his LLC interest basically just walks away.

Of course, abandoning the LLC interest does not relieve the departing member of any liabilities he may have personally incurred to third parties before his abandonment.