Managing Ownership Changes for Your Delaware LLC
Can you change ownership of an LLC? Absolutely, and the process is even quite simple for Delaware businesses.
Unlike other states, Delaware requires very little information to be made public in order to form an LLC. Furthermore, adding and removing members from an LLC is comparatively easy in Delaware.Unlike other states, Delaware requires very little information to be made public to form an LLC. Furthermore, adding and removing members from an LLC is comparatively easy in Delaware. The Certificate of Formation filed with the Delaware Secretary of State is required to contain only three items: the name of the Delaware LLC, the name and address of the Delaware LLC's registered office, and the name of the LLC's Registered Agent in Delaware. Information such as the member(s) name, addresses, and the percentage of the business owned doesn’t need to be shared with the state of Delaware and therefore is not part of the public record.
As such, most updates to your business can be handled internally through the LLC operating agreement, without complex state filings. With the right templates, adding or removing members will be a simple administrative process that can be completed in a day.
Why You Might Update LLC Members
Throughout the life of an LLC, there will be several occasions when you need to update LLC members or adjust ownership percentages. A few of the most common scenarios are:
- Bringing in a new partner or investor
- Buying out a departing member due to retirement or resignation
- Transfer of ownership through inheritance or estate planning
- Selling membership interest to an outside party
- Restructuring ownership to reflect changing roles or contributions
- Converting a single-member LLC to a multi-member structure (or vice versa)
How to Transfer Delaware LLC Ownership
Transferring ownership of a Delaware LLC typically involves updating membership records and documenting the change according to your operating agreement. This process is usually quite simple.
Unlike other states, Delaware LLC changes in ownership will happen through the Operating Agreement. The LLC's Operating Agreement can be altered as needed by the members, without filing the changes with the state of Delaware. Some of the most common changes are adding new members, removing members, or adjusting a member's ownership percentage. The LLC's Operating Agreement must be amended to reflect that a new member is now part of the LLC, or to reflect the removal of a member, and all current members must sign the newly amended Operating Agreement.
State Filing Requirements
For most Delaware LLC ownership changes, you generally do not have to file anything with the State of Delaware. That’s because Delaware does not require member names or ownership percentages to be part of the public Certificate of Formation, and the state doesn’t track changes in membership as a matter of course. Instead, changes in members are reflected internally through amendments to your operating agreement, which, once again, isn’t filed with the Division of Corporations.
Your Delaware Registered Agent does not need to be informed of the LLC's change of ownership either; we only need to know if there is a change to the company's communications contact, address, or phone number.
In essence, updating members in a Delaware LLC is primarily an internal process. Nevertheless, Delaware expects you to amend your operating agreement and keep updated records of members and ownership percentages.
Tax Considerations
For most multi-member LLCs taxed as partnerships, ownership changes impact how profits, losses, and tax allocations are divided. When a new member is added or percentages shift, the operating agreement should specify how income and deductions are allocated for the tax year.
If your LLC is taxed as a sole proprietorship and you add a new member, the business generally becomes a partnership for tax purposes. That shift changes how income is reported and may require filing a partnership return.
Tax consequences will vary by structure and transaction type, so it may be wise to consult a tax professional before finalizing ownership changes.
After an LLC Change of Ownership
After completing a Delaware LLC ownership change, there are still a few important administrative steps to address. Key items to review include:
- Update internal records
- Update banking and financial authority
- Review contracts and licenses
- Update tax and reporting information
- Review beneficiary and estate planning documents
While Delaware generally does not require state filings for member updates, keeping your internal documentation current is a good habit.
Free Amendment Templates for LLC Operating Agreement
Here are some sample LLC Operating Agreement amendments you can use for your own company. Please remember that these should be customized and thoroughly reviewed to make sure they meet the specific needs of your business.
- LLC Amendment - Resignation of a Member
- LLC Amendment - Adding a New Member
- LLC Amendment - Transfer of Interest
As a reminder, these amendments do not need to be filed or recorded with the state.
If you're creating your initial Operating Agreement (not amending one), we have additional free templates and additional information available here.
If you'd like to learn more about adding or removing members to an LLC, you can contact us as your Registered Agent at Harvard Business Services, Inc.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 19 comments left for Managing Ownership Changes for Your Delaware LLC
Han said: Tuesday, August 31, 2021Our LLC was a single-member LLC till we added the 2nd member in June, 2021. Now the 2nd member wants to withdraw and the LLC is back to be a single-member. We have not yet filed Form 8832 to IRS for the first change in June yet. Now after the 2nd member withdrew, should we file two separate Form 8832s for these two changes to IRS, even though the 2nd change reverts the 1st change?
HBS Staff replied: Wednesday, September 1, 2021Hi Han, Thank you for reading our blog. It would probably be in your best interest to consult an accountant for guidance on the tax classification changes from a single to multimember LLC.
Júlia Andrade Nogueira said: Friday, July 9, 2021The partnership is an LLC whose interests we are representing in Units. We initially issued Unit Certificates to the 3 original partners in the LLC and now new partners are joining and diluting the old partners who remain in the partnership but with fewer Units. In this case, will we issue Unit Certificates to the new members and what do we do with the old certificates, cancel them?
HBS Staff replied: Monday, July 12, 2021Hi Júlia, The ownership, operations and management of an LLC are governed by a written Operating Agreement among its owners that is not required to be publicly filed or disclosed to the Delaware Division of Corporations. As a result, an LLC allows the ability to create a customized management structure, which prescribes the relationship among owners. The State of Delaware does not need to be informed of changes of members as that is considered an internal matter within the operating agreement. While issuing unit certifcates is not common, you may want to reach out to an attorney for further assistance.
Jan Barbas said: Wednesday, May 19, 2021Hi, if one wants to not be part of an Delaware LLC, is it enough to create a Interest agreement where they state that they assign and transfer all their membership interest to the remaining LLC founders and all the LLC founders sign it? Is there a specific wording or phrase that needs to be used or the above is ok? Second: After the interest agreement is signed and a new operating agreement is created with the remaining shareholders is there anything to be done for the member leaving the LLC so that they are not part of the LLC anymore? Thanks!
HBS Staff replied: Wednesday, May 19, 2021Hello Jan,
Thank you for reading our blog and for your question. The removing and adding of Members (Owners) in a Delaware LLC is not required to be disclosed to the State of Delaware nor to Harvard Business Services, Inc. The LLC Operating Agreement is also not required to be disclosed to the the State of Delaware nor with Harvard Business Services as this is an internal document. All that Harvard Business Services requires is an accurate contact person. For more assistance with your questions we would recommend you speak with an Attorney for further clarification.
Sami said: Tuesday, September 8, 2020If there are two members one US citizen other from outside and later the US member wants to withdraw. 1. Can the LLC survive with only Non US member? 2. Would the LLC tax status need to be changed from Partnership to S Corp? 3. Would bank or any other entity need to be notified of the change? Thanks very much for your help in advance.
HBS Staff replied: Tuesday, September 8, 2020Yes, an LLC can have any combination of U.S. and/or non-U.S. members. For a Delaware LLC, the ownership change would be made in the operating agreement and does not need to be filed with the state. It is wise to notify anyone with whom the LLC has an account and understand whether the change affects the existing relationship. More info on that here: https://www.delawareinc.com/blog/llc-change-ownership-checklist/
Unfortunately, we cannot advise on what you'll need to do for tax status, as this can vary based on the specific company. We recommend consulting a tax professional for this part of your question.
Rita said: Wednesday, July 8, 2020Is it possible if the other member of the company resides outside US? what is the law or rule for this
HBS Staff replied: Thursday, July 9, 2020Yes, any individual or business entity in the world, with the exception of certain restricted countries, is eligible to be a member of Delaware LLC. Here is some additional information: https://www.delawareinc.com/blog/who-can-be-a-member-of-an-llc/