Membership Interest Purchase Agreement — United States

Overview

A membership interest purchase agreement (MIPA) is the contract under which a member (owner) of a limited liability company (LLC) sells all or part of their membership interest to a buyer, who may be an existing member, the LLC itself, or an outside third party. It is the LLC-ownership equivalent of a stock purchase agreement for a corporation, and is governed by the LLC statute of the state where the company is organized (every state has its own LLC act, and there is no uniform national LLC statute, though most states' acts share common features derived from Delaware's influential Limited Liability Company Act and the Revised Uniform Limited Liability Company Act adopted in some states) together with the company's own operating agreement. A distinctive feature of US LLC transfers, in contrast with several EU jurisdictions (including France's cession de parts sociales, which for an SARL typically requires specific formalities and, depending on the transfer, potential notarization or registration formalities), is that there is generally no notarial requirement to transfer an LLC membership interest under US law — the transfer is effected by contract and by updating the LLC's own membership records (and, in states that require it, by amending or filing an updated list of members with the state, though many states do not require member information to be filed at all). What governs the mechanics and any restrictions on transfer is primarily the company's own operating agreement, not a statutory notarial process. When to use it: whenever an LLC member wants to sell their entire interest or a portion of it — for example an exiting founder, a member cashing out, or bringing in a new investor by purchasing an existing member's stake rather than the company issuing new interests. Parties: the seller (transferring member), the buyer, and often the LLC itself as a party (to consent to the transfer, update its books, and confirm any right of first refusal held by other members has been satisfied or waived). Operating agreement transfer restrictions: most LLC operating agreements restrict transfers — commonly requiring the consent of the other members, or granting them a right of first refusal — and a transfer made without complying with these restrictions can be void or ineffective as to the LLC even if the buyer and seller have a valid contract between themselves; the purchase agreement should confirm that any required consents or waivers have been obtained before or at closing. Key clauses: description of the interest being transferred (percentage or units), purchase price and payment terms, representations and warranties by the seller (that they own the interest free of liens, and as to the company's financial condition and liabilities, if material), representations by the buyer (investment intent, accredited investor status if relevant for securities law purposes), and post-closing covenants (updating the operating agreement and any required state filings). Securities law: depending on how the interest is marketed and the number/sophistication of prospective buyers, the sale of an LLC membership interest can itself implicate federal and state securities law (an LLC interest can be a "security" under the Howey test in some circumstances) — this is a fact-specific analysis best confirmed with counsel, particularly for sales to outside investors. Common pitfalls: transferring an interest without first confirming compliance with the operating agreement's consent or right-of-first-refusal provisions; assuming a notarial step is required (it generally is not, unlike some EU jurisdictions); and failing to update the LLC's internal records and any state filing that lists members, which can create ambiguity about who is actually a current member.

Information to customize

• LLC's name

• State where the LLC is organized

  LLC transfer rules and any state filing requirements are set by the state of organization.

• Seller (transferring member)'s name

• Seller's address

• Buyer's name

• Buyer's address

• Description of the membership interest being transferred (percentage or units)

• Purchase price

• Payment terms

• Confirmation of required consents/waivers under the Operating Agreement

  Most operating agreements require member consent or offer a right of first refusal before a transfer is effective.

• Seller representations and warranties

• Closing date

• Date of signature

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Frequently asked questions

Does transferring an LLC membership interest require notarization in the US?

Generally no. Unlike some EU jurisdictions, there is no US statutory notarial requirement to transfer an LLC membership interest — the transfer is effected by contract and by updating the LLC's own records, subject to whatever process the operating agreement requires.

Can a member freely sell their LLC interest to anyone?

Not necessarily. Most LLC operating agreements restrict transfers, commonly requiring the consent of other members or granting them a right of first refusal. A transfer made without following these restrictions can be ineffective as to the company even if the buyer and seller have a valid contract between themselves.

Which state's law governs the transfer?

The LLC statute of the state where the company is organized, together with the company's own operating agreement — every state has its own LLC act, and there is no single national LLC statute.

Can selling a membership interest trigger securities law?

Potentially. Depending on how the interest is marketed and to whom, an LLC membership interest can be considered a security under federal or state law in some circumstances — this is fact-specific and should be confirmed with counsel, particularly for sales to outside investors.

What happens to the company's records after the sale?

The company should update its internal membership records to reflect the new owner and, if required by the state of organization, update or file any state filing listing members.

Does this agreement need to be reviewed by an attorney?

Yes, always. This document affects company ownership with significant financial and tax consequences, and state-specific LLC law review by an attorney licensed in the state of organization is essential before signing.

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