Assignment of Membership Interest in an LLC

Assignment of Membership Interest in an LLC

An Assignment of Membership Interest is a legal process by which an existing member of a Limited Liability Company (LLC) transfers some or all of their economic rights in the LLC to another person or entity. This typically includes the right to receive profits, losses, and distributions.

Important: In most states, an assignment does not automatically transfer management or voting rights. For the assignee to become a full member with those rights, the other members must consent, and the LLC’s operating agreement must be amended to reflect the change.

When Might You Assign Your Membership Interest?

Common situations include:

1. Bringing in a new investor
   You may transfer a percentage of your membership interest in exchange for capital investment or strategic expertise.
   
2. Retirement or exit
   A member leaving the business may assign their interest to an existing member, a family member, or a buyer.
   
3. Resolving disputes
   If a member exits due to disagreement, their interest may be reassigned to other members or an outside party (subject to agreement terms).
   
4. Business restructuring
   When restructuring or merging LLCs, members may reallocate interests to align with the new structure.
   
   

In each scenario, the LLC’s operating agreement should be reviewed first to ensure compliance with transfer procedures, notice requirements, and any consent thresholds.

Who Are the Parties to the Assignment?

• Assignor – The current member transferring their economic rights.
  
  
• Assignee – The recipient of those rights.
  
  

Example:
Kate owns a 35% membership interest in Wyx Hospitality, LLC. She agrees to assign 24% of her interest to Alex.

• Kate = Assignor
  
• Alex = Assignee
  
• 24% = Assigned Interest
  
  

Once the agreement is executed, Alex will receive the economic benefits of the assigned interest. Unless the operating agreement and members approve his admission, he will not have management or voting rights.

What Rights Are Transferred?

By default, only financial rights transfer. These typically include:

• A share of profits and losses.
  
•  
• The right to receive distributions.
  
  

Management rights—such as voting, decision-making, and access to confidential company information—remain with the assignor unless all members approve the assignee as a new member.

Do Other Members Need to Approve?

Yes, if the assignee is to become a member. Most LLC laws require unanimous or majority consent (depending on the operating agreement) before granting management rights. For purely economic assignments, consent rules vary—check your state law and agreement.

Restrictions on Transfers

Your operating agreement may:

• Require written notice or approval before assignment.
  
  
• Limit the percentage of interest that can be transferred.
  
  
• Restrict transfers to certain types of entities or individuals.
  
  

Any specific notice period (e.g., “45 days”) is not a general legal rule—it must come from your operating agreement.

Key Provisions in an Assignment of Membership Interest Agreement

1. Effective Date – When the assignment takes effect.
   
   
2. Parties – Full legal names and addresses of the assignor and assignee.
   
   
3. Description of Interest – Exact percentage or units being assigned.
   
   
4. Consideration – Payment terms (amount, currency, method).
   
   
5. Warranties – Assignor’s assurance that they have the right to transfer and that the interest is free from liens or other claims.
   
   
6. Assumption of Obligations – If applicable, the assignee’s agreement to assume specified obligations (only if admitted as a member).
   
   
7. Compliance Clause – Statement that the transfer complies with the operating agreement and applicable law.
   
   

An assignment of membership interest is more than a handshake—it’s a legal transaction that should follow your LLC’s operating agreement and state law. Always document the transfer with a formal agreement and, when in doubt, seek legal advice to ensure the assignment is valid and enforceable.