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
Linda Brooks said: Monday, March 4, 2019Hello i have a partnership LLC i would like to be removed from however i am the responsible party how do i remove myself with the state of secretary and the irs theres 2 persons myself an another we have 50/50 ownership i just want out the LLC have been in existence for 9months still pretty new..please give me info on what an how to proceed...the partnership LLC is filed with state of delaware an irs..thank you..i need help i don't know where to begin
HBS Staff replied: Tuesday, March 5, 2019Linda - 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 typical changes people make are the removal or addition of a member or the change in percentage of a member's ownership. The LLC's Operating Agreement must be amended to reflect the removal of a member, and all current members must sign the newly amended Operating Agreement.
We will need to know if our communications contact person changes, please email our team at mail@delawareinc.com any updates or changes. They can be reached at 800 345 2677 ext 6903 a live person will answer immediately.
To change the responsible party of the LLC, you must inform the IRS. The form to change information on the LLC’s responsible party is IRS form 8822B. Instructions on how to file the change can be found on the form as well.
Carlos said: Tuesday, January 15, 2019I just formed an LLC in Delaware and I want to sell it to a friend. I can read here it's not complicated, but I'm not sure on how to proceed. What are the appropiate steps to do it, including sites to visit, forms to fill out and documents to submit? Thank you
HBS Staff replied: Thursday, January 17, 2019Hi Carlos - Since the name of the LLC members is not filed with the state, the change of ownership can typically be handled internally and should be noted on the LLC Operating Agreement (free templates above). You generally only have to file documents with the state if there is a change in the company name, company address, or Registered Agent. Please feel free to call or chat with us for specific questions.
Fernando Battaglia said: Monday, January 7, 2019How can I transfer the complete company in another people name? I need the procedures step by step. Thank you.
HBS Staff replied: Tuesday, January 8, 2019Fernando - If you have a Delaware LLC, information such as the member(s) name, address and the percentage of the business owned is generally not required to be provided to the state of Delaware and therefore is not part of the public record. This information is kept on file internally within the LLC's Operating Agreement. Just use one of the templates linked at the end of the post above and file the new information internally with your LLC.
Robert Muehr said: Friday, October 5, 2018This is interesting. If there is no record at the State of who the members are, then how can anybody prove ownership? As an example, the LLC owns a residence. The sole member decides to sell the residence, with the LLC acting as the seller. How can a buyer verify that the LLC is authorized to sell the residence without having the State verify who is in charge?
HBS Staff replied: Monday, October 8, 2018Great question, Robert. Typically, when selling an asset, such as real estate, there are supporting documents from the LLC that need to be provided to the attorney that is handling the real estate transaction. Traditionally, it is the LLC agreement; however, the process can be different depending on the attorney handling the transaction.
Jaili Nicolaou said: Wednesday, April 11, 2018Hi there - I am an attorney practicing in South Africa. Please could you provide clarification. Your responses above seem clear but It seems bizarre that a LLC registered in the state of Delaware need not file any formal shareholding changes. we are restructuring and the shareholding in our LLC is moving to another company within the group. the original share certificate is issued by the state of Delaware so how do we obtain a new share certificate confirming the change in ownership if there are no formal filing requirements?
HBS Staff replied: Wednesday, April 11, 2018Are you sure you're referring to an LLC? LLC's do not typically issue stocks of share and Delaware would not have issued any paperwork pertaining to LLC membership shares. Here is more detailed information on the topic:
https://www.delawareinc.com/blog/Delaware-llc-ownership-units/
https://www.delawareinc.com/blog/business-structure-llc/
If you are referring to a corporation, we can certainly help. Feel free to live chat with us via our homepage or call 1-800-345-2677 for further assistance.