assignment of interest in limited partnership

Assignment Of Partnership Interest: Definition & Sample

Jump to section.

ContractsCounsel has assisted 27 clients with assignments of partnership interest and maintains a network of 38 business lawyers available daily.

What is an Assignment Of Partnership Interest?

• Information about the partnership like the name of the business
• The type of interest being transferred
• The names and information of both the assignor and the assignee
• Information about the remaining partners

Common Sections in Assignments Of Partnership Interest

Below is a list of common sections included in Assignments Of Partnership Interest. These sections are linked to the below sample agreement for you to explore.

Assignment Of Partnership Interest Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.37 15 dex1037.htm FORM OF AGREEMENT AND ASSIGNMENT OF PARTNERSHIP INTEREST , Viewed October 25, 2021, View Source on SEC .

Who Helps With Assignments Of Partnership Interest?

Lawyers with backgrounds working on assignments of partnership interest work with clients to help. Do you need help with an assignment of partnership interest?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate assignments of partnership interest. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Need help with an Assignment Of Partnership Interest?

Meet some of our assignment of partnership interest lawyers.

I am a licensed and active NY and CT Contracts Attorney, with over 20 years of diverse legal and business experience. I specialize in reviewing, drafting and negotiating commercial agreements. My practice focuses on working with small business clients as well as clients from international brokerage firms on acquisitions, especially in the Ecommerce space; drafting, negotiating, reviewing and advising on business agreements; ; breach of contract issues, contract disputes and arbitration. I am licensed to practice in New York and Connecticut, and am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. This entails reviewing, updating and drafting contracts such as employments agreements, asset purchase agreements, master services agreements, operating agreements and a variety of business and commercial contracts. Additionally, I assist clients with business strategies, contract disputes and arbitration. My diverse experience allows me to give my clients a well-rounded approach to the issues they face. I have been at top AML law firms; a Vice President at an Investment Bank, a Civil Court Arbitrator presiding over cases in contract law, commercial law, a Hearing Officer, presiding over cases and rendering written decisions, and a Judicial Clerk to a Civil Court Judge. It would be a privilege to assist you and your business with my services.

Results oriented business attorney focusing on the health care sector. Formerly worked in Biglaw doing large multi-million dollar mergers and acquisitions, financing, and outside corporate counsel. I brought my skillset to the small firm market, provide the highest level of professionalism and sophistication to smaller and startup companies.

Retired Dentist transitioned to Law, with a special interest in Commercial Real Estate, Startup businesses, Asset Purchase Agreements, and Employment Contracts. I love to help dentists and physicians with legal issues pertaining to licensing, credentialing, employment, and general business-legal questions.

Attorney licensed and in good standing in the State of Ohio. Worked in the corporate division of a large law firm (Squire, Sanders & Dempsey), and as inside counsel for a technology company (America Online). Lived in 6 different states in a 12 year period. Took some time off of legal work to raise 4 kids. During that time kept active as a volunteer - Houston Volunteer Lawyers Program, Legislative chair of school board for 3 years, President of school PTA, PADS and local food pantry. Currently working as a Consultant for a health care company (Fast Pace Health). Looking to get back to transaction legal work. Can work remotely and travel to Ohio when necessary. Thank you.

I am a solo legal practitioner in Tucson, Arizona who focuses on Estate Planning, Probate, Business Formation and Mediation. I have expertise and experience in not only law but as a Registered Nurse and teacher. I use this background and knowledge to provide compassionate and individualized service for my clients.

Commercial Litigation attorney providing advice and counsel to management regarding employment related matters and risk management issues

Christopher L.

I have worked in banking, financial technology and technology as a legal and compliance executive who negotiates and drafts contracts, ensures products and services comply with applicable regulations, implements policies and procedures, oversees litigation, and manages corporate governance programs.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

Business lawyers by top cities

• Austin Business Lawyers
• Boston Business Lawyers
• Chicago Business Lawyers
• Dallas Business Lawyers
• Denver Business Lawyers
• Houston Business Lawyers
• Los Angeles Business Lawyers
• New York Business Lawyers
• Phoenix Business Lawyers
• San Diego Business Lawyers
• Tampa Business Lawyers

Assignment Of Partnership Interest lawyers by city

• Austin Assignment Of Partnership Interest Lawyers
• Boston Assignment Of Partnership Interest Lawyers
• Chicago Assignment Of Partnership Interest Lawyers
• Dallas Assignment Of Partnership Interest Lawyers
• Denver Assignment Of Partnership Interest Lawyers
• Houston Assignment Of Partnership Interest Lawyers
• Los Angeles Assignment Of Partnership Interest Lawyers
• New York Assignment Of Partnership Interest Lawyers
• Phoenix Assignment Of Partnership Interest Lawyers
• San Diego Assignment Of Partnership Interest Lawyers
• Tampa Assignment Of Partnership Interest Lawyers

ContractsCounsel User

Reassignment of company interest

Location: north carolina, turnaround: less than a week, service: drafting, doc type: assignment of partnership interest, number of bids: 3, bid range: $1 - $1,200, terms & conditions, privacy policy, partner agreements and more, turnaround: over a week, bid range: $1,200 - $3,400, want to speak to someone.

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

• Skip to primary navigation
• Skip to main content
• Skip to primary sidebar
• Skip to footer

Legal Templates

Home Assignment Agreement Partnership Interest

Assignment of Partnership Interest Form

Use our free Assignment of Partnership Interest to sell a stake in a partnership to a new partner.

Updated February 5, 2024 Written by Josh Sainsbury | Reviewed by Brooke Davis

A partner uses an Assignment of Partnership Interest form to sell their interest in the partnership to a new partner. Through the Assignment of Partnership Interest, the potential new partner (known as “the assignee”) agrees to pay the current partner (known as “the assignor”) in exchange for all the financial interests and obligations included in the partnership rights.

Keep in mind that in some cases, full partnership rights cannot be sold to the new partner unless all current partners also agree. Economic partnership rights, however, can still be sold without the agreement of all partners.

What is an Assignment of Partnership Interest?

When is a partnership assignment needed, the consequences of not having a partnership assignment, common uses for an assignment of partnership interest, what should be included in a partnership assignment, assignment of partnership interests sample.

An Assignment of Partnership Interest is a legal document that transfers the rights to receive benefits from an original business partner (“Assignor”) to a new business partner (“Assignee”).

It’s essential to learn about the types of partnerships and potential advantages and disadvantages of a partnership before entering into this business relationship.

This document will identify the following essential elements:

• Partnership Details : legal name of the business, its purpose, and date established
• Assignee : name and address of the new partner receiving the business interest
• Assignor : name and address of the old partner giving the business interest
• Partners : name and address of the remaining partners of the business
• Consideration : the amount of money exchanged for the business transfer
• Closing Date : when the assignment will end
• Signatures : all members of the original partnership and the assignee must sign

This document is needed to formally document a business transaction between the old and new partners.

Some partnership agreements contain a right of first refusal so that the original partners have a right to purchase the interest before an outside party. [1]

What happens if I do not have one?

Without this document, neither the old nor new partners are legally obligated to follow through with their promises to buy or sell the business’s shares. The Assignment may also clarify whether the new partner has the right to participate in the business’s operation, finances, or management.

For example, a full-fledged partner usually has the right to inspect the books, take possession of partnership property, and make decisions with other partners.

Otherwise, the new partner only has the right to receive a share of the profits and any distributions if the partnership ends.

Most partnership agreements only allow the transfer of the partner’s interest in the business so that the new partner can only receive the old partner’s share of the money but not have a say in the business operations or finances.

An Assignment of Partnership Interest is usually just one of several legal documents needed during the sale process. A Confidentiality Agreement plus a Purchase Order are also used to complete the transaction.

Here are just a few of the situations when this document is commonly used:

• Cash flow needs of the business change [2]
• Business assets are allocated differently
• The strategy of the partnership changes
• The regulatory environment presents new challenges

An Assignment of Partnership Interest should generally address the following:

• Who will be giving and receiving the business interest
• What rights does the assignee have in terms of operation or management
• Where is the business partnership located
• When was the partnership first established
• How much will the old partner receive in return for giving a part of their interests

Here’s what an assignment of partnership interests typically looks like:

Use can download the free template in PDF & Word format or use our document builder to help guide you through the writing process.

Legal Templates uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial guidelines to learn more about how we keep our content accurate, reliable and trustworthy.

• Assignment of Partnership Interests. http://delcode.delaware.gov/title6/c017/sc07/index.shtml
• ADAM HAYES. Cash Flow. https://www.investopedia.com/terms/c/cashflow.asp

Related Documents

• Sales and Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Purchase Agreement : A legally enforceable contract that documents the sale of a business.
• Stock Purchase Agreement : Record the purchase of stock and protect the buying and selling parties.
• Shareholder Agreement : Use this document to explain the structure and nature of shareholders' relationships to the corporation and to one another.
• Legal Resources
• Partner With Us
• Terms of Use
• Privacy Policy
• Cookie Policy
• Do Not Sell My Personal Information

The document above is a sample. Please note that the language you see here may change depending on your answers to the document questionnaire.

Thank you for downloading!

How would you rate your free template?

Click on a star to rate

• Obtain a Proposal

Family Limited Partnerships: Are Assignee Interests Worth Less Than Limited Partnership Interests?

Since family limited partnerships (or FLPs) became popular in 1994, we have valued hundreds such asset holding entities. Family limited partnerships are useful because one generation, owning a general partnership interest, can control the cash flow from gifted assets. FLPs can simplify estate planning, allowing for gifting of fractional interests, and helping consolidate family assets. Another advantage of FLPs is that they are often designed to protect family assets from failed marriages, “unworthy” heirs, creditors, and other family disputes.

The valuation of FLPs generally begins with an estimate of net asset value. Appraisers then consider the application of appropriate minority interest and marketability discounts based on the facts and circumstances of each case. The cumulative amount of discounting in FLP appraisals is important because, given a net asset value, it determines the fair market value at which interests are gifted, and thus the taxes which must be paid on the value of the gift.

The Big Question

Because the use of FLPs is relatively new to many attorneys and clients, we are often asked to answer questions about how we value them. Many attorneys have asked the following (or a similarly worded) question. Since we are dealing with limited partnership interests, and since what can be transferred in most instances is only an assignee interest, shouldn’t there be a further discount applicable to the assignee interest? Good question.

To answer it, we need some further background. It is helpful to think of ownership in a limited partnership as consisting of two components: 1) the economic interest, and 2) the rights attached to the interest. We believe it is important not to confuse the two.

The economic interest is the pro rata ownership of or claim to distributions and assets. In almost all cases, an ownership interest of, say, 1%, has a pro rata 1% claim on all distributions (whether interim or at dissolution), as well as indirect ownership of 1% of the assets underlying the Partnership. Thus, in almost all cases, if a distribution of, say, $100 thousand is declared, then a 1% general partnership interest receives $1,000, as does a 1% limited partnership interest, as does a 1% assignee/transferee interest.

The rights attached are the second component of value, and the differences in rights attached can be significant. General partners might collectively own only 1% to 10% of total interests in a given partnership, but typically have exclusive authority to manage the partnership, including its investment policy, distribution policy, and other aspects of management. Limited partners and assignees/transferees typically have no real aspects of control over the partnership, despite the fact that they might own a majority in interest of the outstanding partnership units. This relationship is achieved by the covenant that is the partnership agreement, and is akin to the difference between voting and non-voting stock in a corporation, with some differences. Assignee interests are in essence limited partnership interests with economic participation equal to that of limited partnership interests but typically without the same rights.

The difference in rights attached to limited partnership interests versus that of assignee or transferee interests can be significant. In most FLPs, limited partners typically have the right to call meetings of the partners, to vote on certain matters such as dissolution and successor general partners, to inspect the books of the partnership, to transfer their interests to other partners or to third parties (sometimes subject to restrictions), and other similar rights. Assignee or transferee interests, on the other hand, typically do not garner the right to vote, inspect the books of the partnership, or transfer their interests.

The problem in attaching specific value to the rights relating to a limited partnership interest versus that of an assignee/transferee interest (or, conversely, discounting an assignee interest from the value of a limited partnership interest), is that the rights attached to a limited partnership interest are typically not transferable. If a limited partner wants to assign, gift, or sell his or her interest to another person, the interest that is received by the acquirer is generally an assignee interest, not a limited partnership interest. The rights of a limited partner are not usually transferable, only the economic benefit. Typically, only after the acquirer has received or has purchased the economic interest in the partnership do the partners vote to admit or refuse the assignee as a limited partner.

There is good reason for this. Partnerships are contracts between persons designed for their mutual benefit. One protection that limited partners receive is that they cannot easily be forced to accept someone with whom they did not originally covenant as their partner. Thus, the assignee interest is a sort of in-between phase in which the acquirer of an economic interest in the partnership petitions to become a partner. In some cases, only the general partner must approve. In other cases, the process of becoming a full limited partner is more onerous.

Nonetheless, if the only value transferable is the economic benefit (and not the limited partner rights attached to it), then is not every (or nearly every) valuation of a limited partnership interest actually the valuation of an assignee interest? Again, it is important to remember that the heir, acquirer, or purchaser of a limited partnership interest actually receives an assignee interest, not a limited partnership interest. The Quantitative Marketability Discount Model used by Mercer Capital is designed to value the economic aspects attributes of a limited partnership interest, i.e., the assignee interest. Our reasoning is consistent with a recent ruling of the United States Court of appeals (Fifth Circuit) [See McLendon v. Commissioner , KTC 1995-624 (5th Cir. 1995), case no. 94-40584.], in which the Court agreed that limited partner interests should be valued as assignee interests.

In a United States Tax Court case, the Court saw no economic distinction between valuing a disputed gift as a limited partnership interest versus that of an assignee interest (but ultimately valued it as an LP interest) [See Kerr v. Commissioner , United States Tax Court 113 T.C. No. 30, docket no. 14449-98.]. Unfortunately, a third ruling, also by the United States Tax Court, clouds the issue by agreeing that certain limited partnership interests should be valued as assignees for transfer tax purposes (so far so good). In this case, however, the Court then valued certain general partnership interests as general partner interests rather than as assignee interests because they were received by an existing general partner, contrary to the valuation standard of “hypothetical” buyers and sellers [See Nowell v. Commissioner , United States Tax Court T.C. Memo 1999-15., docket no. 19056-96.].

Now, the Answer

At this time, we have determined no compelling reasons to value gifts of assignee interests at a lower level than limited partnership interests. If, under appropriate circumstances, we were to assign value to limited partner rights above and beyond that of their economic interest, the impact of this adjustment would likely not be large. Market evidence of the differential between voting and nonvoting common stock interests suggests a minor impact if translated to the relationship between assignee interests (nonvoting) and limited partnership interests (voting), perhaps on the order of five percent, plus or minus a bit. However, in the context of a fair market value appraisal, a rational acquirer of an assignee interest would likely attribute little (if any) value to “the vote” since there is a positive probability that they might never be obtained.

If you have questions about the valuation of family limited partnerships or other similar concerns, please contact us. We would be glad to help.

Reprinted from Mercer Capital’s Value Added TM – Vol. 12, No. 1, 2000.

Key Contacts

Timothy R. Lee, ASA

(901) 322-9740

Nicholas J. Heinz, ASA

(901) 322-9788

Asset Holding Companies

Business Valuation

Gift, Estate, and Income Tax Compliance

N.Y. Partnership Law Section 121-702 Assignment of partnership interest

Source: Section 121-702 — Assignment of partnership interest , https://www.­nysenate.­gov/legislation/laws/PTR/121-702 (updated Sep. 22, 2014; accessed Sep. 7, 2024).

Accessed: Sep. 7, 2024

Last modified: Sep. 22, 2014

§ 121-702’s source at nysenate​.gov

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

Do you have an opinion about this solution? Drop us a line.

Assignment of Interest Form: Everything You Need to Know

An assignment of interest form allows a limited liability company (LLC) member to assign their interest or ownership stake in the company to another person. 3 min read updated on November 25, 2020

An assignment of interest form allows a limited liability company (LLC) member to assign their interest or ownership stake in the company to another person. The information that you will need to include in this form depends on the laws governing LLCs in your state.

Assigning LLC Interest

LLCs are a popular business structure that offers certain features of both corporations and partnerships. Owners of a limited liability company are members, and each member's stake in the company is their interest. LLC members have the ability to transfer their interest by making an assignment of interest.

An LLC's operating agreement describes how the company will be run and dictates the requirements and limitations of members' interests in the company. If this agreement allows members to transfer their company interests, they can do so with an assignment of interest form. Every state will have specific rules for what you must include in this form before a member's interest can be assigned.

In most cases, an assignment of interest does not constitute a sale of a member's LLC interest. In many states, an assignment of interest only transfers the financial advantage of the stake or share, so the member who initially possessed the interest still retains his or her voting and managerial rights in the company while the assignee will not. Assignments of interest are commonly used as loan collateral, and once the loan is paid off, the assignment ends.

Furthermore, an assignment will only transfer a percentage of an LLC member's interest. You are not required to assign all of your stakes' financial benefits. Having the ability to transfer a portion of interest allows members of an LLC to use their ownership stake very flexibly. However, partial assignments can only be made if the LLC's operating agreement allows them.

Assignments and Partnerships

An assignment of partnership interest is similar to an assignment of LLC interest. Assigning a partnership interest involves a business partner assigning their right to financially benefit from the partnership to a new partner.

When writing an assignment of partnership interest form, you should be sure to include the correct information:

• Details about the partnership, including the business's legal name and its formation date.
• Contact information of the new partner who is receiving the partnership interest.
• Contact information of the old partner who is assigning their interest.
• Contact information of the other business partners.
• The monetary amount being exchanged for the partnership interest.
• The date where the assignment will be revoked.
• Signatures of all parties, including the assignor, assignee, and remaining partners.

The main purpose of this legal document is to record the assignment of the partnership interest.

Without a valid assignment of interest form, the new partner would have no way to force the old partner to fulfill the terms of the assignment. In addition to making sure that the assignment is enforceable, this document outlines what role the new partner will play in the business. For instance, the assignment of partnership interest form can dictate if the new partner will have any management or financial responsibilities in the business. Full partners, for instance, can usually make decisions for the business and will also have access to the business's financial records.

There are countless reasons that a business partner may wish to assign their partnership interest to a new partner:

• The business's needed cash flow has changed.
• A change has occurred in how the business allocates its assets.
• Implementation of a new partnership strategy.
• New regulations pose challenges for the business.

When assigning a partnership interest, there are several issues you must address:

• Which partner will assign their interest and who will receive the assignment.
• The rights of the assignee to participate in managing or operating the business.
• The location of the business partnership.
• The establishment date of the partnership.
• What the assigning partner will receive in exchange for assigning their partnership interest.

Whether you are a partner in a business or a member of an LLC, your ownership stake in the business entity likely provides you with a variety of rights. For instance, you may have the right to receive profits from the business and the right to receive business assets after the company dissolves. Depending on your operating or partnership agreement , you may be able to transfer these rights to another party in exchange for consideration.

If you need help with an assignment of interest form, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• Assignment of Interest
• Assignment of Interest In LLC
• Assignment Law
• Assignment Legal Definition
• Assignment Of Contracts
• Legal Assignment
• Assignment and Novation Agreement: What You Need to Know
• What is an Assignment and Assumption Agreement
• Assignment of Rights and Obligations Under a Contract
• Assignment Contract Law

How does it work?

1. choose this template.

Start by clicking on "Fill out the template"

2. Complete the document

Answer a few questions and your document is created automatically.

3. Save - Print

Your document is ready! You will receive it in Word and PDF formats. You will be able to modify it.

LLC Membership Interest Assignment

Rating: 4.8 - 952 votes

What is an LLC membership interest assignment?

An LLC membership interest assignment is a document used when one member of a limited liability company ("LLC") wishes to transfer the entirety of their interest in an LLC to another party . This document is often used when a member of an LLC is leaving or otherwise wants to give up the entirety of their interest in the company. Using this document, the current owner of shares in the LLC transfers all of them over to another person or entity.

A limited liability company , also known as an LLC, is a corporate structure that protects its owners from being personally liable for debts and liabilities of the company . LLCs do not pay taxes on their profits directly. Instead, profits and losses are passed through to the individual members, who report them on their personal tax returns.

What is the difference between an LLC membership interest assignment and an LLC membership purchase agreement?

Though both documents involve the transfer of interest in an LLC from one party to another, these two documents serve different purposes. The LLC membership interest assignment transfers the entirety of one person's interest in the LLC to another person. It is also not a sale document.

An LLC membership purchase agreement is the sale of some portion of a party's interest in an LLC to another party.For example, if someone owned 50% interest in an LLC, they could sell 25% of their interest in the LLC to another party and keep the remaining 25% interest for themselves.

Is it mandatory to use an LLC membership interest assignment?

Yes, using an LLC membership interest assignment is mandatory in most states. In the few states where it is not mandatory, it is still highly advisable to use this document to be sure to protect the interests of the parties involved and to make sure all the members of the LLC are informed about the ownership transfer.

What is "membership interest"?

Membership interest is a party's ownership stake in an LLC. It represents the parties' right to share in the profits and losses of the LLC and to receive distributions from it.

What are the prerequisites of an LLC membership interest assignment?

Prior to creating an LLC membership interest assignment, several things should happen. Firstly, the parties should review the LLC's operating agreement . This document may contain restrictions or requirements for the transfer of interest in the LLC. For example, the operating agreement may require that existing members of the LLC have the right to buy the interest in the LLC before it is sold to any outside third party.

The parties to the agreement should also get consent to the sale from the current members of the LLC. This is not always necessary, but it is common and usually considered good practice.

Before agreeing to the terms of the LLC membership interest assignment, the new owner should also do research into the LLC to be sure that it is in good standing and not involved in ongoing litigation or bankruptcy proceedings.

Who is involved in an LLC membership interest assignment?

The LLC membership interest assignment includes the party giving up their interest in an LLC and the party receiving the interest in the LLC. Both of these parties can either be individual people or entities, like a business or charitable organization.

What has to be done once the LLC membership assignment agreement is done?

Once the LLC membership interest assignment is done, it should be signed and dated both the assigning party and the receiving party . All members of the LLC should be notified of the transfer. This notification usually happens by providing a copy of the Assignment and any related documents to the LLC's registered agent or manager. Information about the process is typically specified in the LLC Operating Agreement . In some states, transfer of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization. The LLC should be sure to update its bank accounts, contracts, licenses, and permits as necessary to reflect the membership change. Finally, the LLC should maintain accurate records of the transfer of interest, saving for future reference copies of the Assignment Agreement, amended Operating Agreement, consent of members, and any other relevant documents.

Is it necessary to register the LLC membership interest assignment?

In some states, transfer of interest in an LLC requires that formation documents be updated and refiled with the appropriate state office to reflect changes in membership. This may also involve filing an amendment to the Articles of Organization .

What must an LLC membership interest assignment contain?

A valid LLC membership interest assignment must contain at least the following mandatory clauses:

• Identification of involved parties : The LLC membership interest assignment will include details about the identity of both the party giving up their interest, as well as the party who will get the interest in the LLC.
• Description of membership interest : The LLC membership interest assignment includes details about the membership interest, including the percentage of the LLC and whether it includes voting rights.

In addition to the above mandatory clauses, the LLC membership interest assignment may also include the following optional clause:

• Consent requirement : If needed, this document includes an addendum at the end specifying that all the members of the LLC consent to the transfer of interest.

Which laws are applicable to an LLC membership interest assignment?

LLC Membership Interest Assignments are subject to the laws of individual states . There is no one federal law covering these documents because each individual state governs the businesses formed within that state.

How to modify the template?

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

Guides to help you

• How to Sell your Percentage in an LLC
• How to Sell your Business
• How to Transfer Business Ownership

LLC Membership Interest Assignment - FREE - Template

Country: United States

Business Structure - Other downloadable templates of legal documents

• Articles Of Organization
• Shareholder Agreement
• Articles Of Incorporation
• Partnership Agreement
• Business Sale Agreement
• Corporate Bylaws
• Stock Sale and Purchase Agreement
• LLC Membership Purchase Agreement
• Founders' Agreement
• Business Merger Agreement
• Limited Partnership Agreement
• Other downloadable templates of legal documents

Marcum Announces Acquisition Agreement to Join CBIZ Learn More

• Newsletters
• Client Portal
• Make Payment
• (855) Marcum1

Search our Services and Industries

Tax issues to consider when a partnership interest is transferred.

By Colleen McHugh - Co‑Partner‑in‑Charge, Alternative Investments

There can be several tax consequences as a result of a transfer of a partnership interest during the year. This article discusses some of those tax issues applicable to the partnership.

Adjustments to the Basis of Partnership Property Upon a transfer of a partnership interest, the partnership may elect to, or be required to, increase/decrease the basis of its assets. The basis adjustments will be for the benefit/detriment of the transferee partner only.

• If the partnership has a special election in place, known as an IRS Section 754 election, or will make one in the year of the transfer, the partnership will adjust the basis of its assets as a result of the transfer. IRS Section 754 allows a partnership to make an election to “step-up” the basis of the assets within a partnership when one of two events occurs: distribution of partnership property or transfer of an interest by a partner.
• The partnership will be required to adjust the basis of its assets when an interest in the partnership is transferred if the total adjusted basis of the partnership’s assets is greater than the total fair market value of the partnership’s assets by more than $250,000 at the time of the transfer.

Ordinary Income Recognized by the Transferor on the Sale of a Partnership Interest Typically, when a partnership interest is sold, the transferor (seller) will recognize capital gain/loss. However, a portion of the gain/loss could be treated as ordinary income to the extent the transferor partner exchanges all or a part of his interest in the partnership attributable to unrealized receivables or inventory items. (This is known as “Section 751(a) Property” or “hot” assets).

• Unrealized receivables – includes, to the extent not previously included in income, any rights (contractual or otherwise) to payment for (i) goods delivered, or to be delivered, to the extent the proceeds would be treated as amounts received from the sale or exchange of property other than a capital asset, or (ii) services rendered, or to be rendered.
• Property held primarily for sale to customers in the ordinary course of a trade or business.
• Any other property of the partnership which would be considered property other than a capital asset and other than property used in a trade or business.
• Any other property held by the partnership which, if held by the selling partner, would be considered of the type described above.

Example – Partner A sells his partnership interest to D and recognizes gain of $500,000 on the sale. The partnership holds some inventory property. If the partnership sold this inventory, Partner A would be allocated $100,000 of that gain. As a result, Partner A will recognize $100,000 of ordinary income and $400,000 of capital gain.

The partnership needs to provide the transferor with sufficient information in order to determine the amount of ordinary income/loss on the sale, if any.

Termination/Technical Termination of the Partnership A transfer of a partnership interest could result in an actual or technical termination of the partnership.

• The partnership will terminate on the date of transfer if there is one tax owner left after the transfer.
• The partnership will have a technical termination for tax purposes if within a 12-month period there is a sale or exchange of 50% or more of the total interest in the partnership’s capital and profits.

Example – D transfers its 55% interest to E. The transfer will result in the partnership having a technical termination because 50% or more of the total interest in the partnership was transferred. The partnership will terminate on the date of transfer and a “new” partnership will begin on the day after the transfer.

Allocation of Partnership Income to Transferor/Transferee Partners When a partnership interest is transferred during the year, there are two methods available to allocate the partnership income to the transferor/transferee partners: the interim closing method and the proration method.

• Interim closing method – Under this method, the partnership closes its books with respect to the transferor partner. Generally, the partnership calculates the taxable income from the beginning of the year to the date of transfer and determines the transferor’s share of that income. Similarly, the partnership calculates the taxable income from the date after the transfer to the end of the taxable year and determines the transferee’s share of that income. (Note that certain items must be prorated.)

Example – Partner A transfers his 10% interest to H on June 30. The partnership’s taxable income for the year is $150,000. Under the interim closing method, the partnership calculates the taxable income from 1/1 – 6/30 to be $100,000 and from 7/1-12/31 to be $50,000. Partner A will be allocated $10,000 [$100,000*10%] and Partner H will be allocated $5,000 [$50,000*10%].

• Proration method – this method is allowed if agreed to by the partners (typically discussed in the partnership agreement). Under this method, the partnership allocates to the transferor his prorata share of the amount of partnership items that would be included in his taxable income had he been a partner for the entire year. The proration may be based on the portion of the taxable year that has elapsed prior to the transfer or may be determined under any other reasonable method.

Example – Partner A transfers his 10% interest to H on June 30. The partnership’s taxable income for the year is $150,000. Under the proration method, the income is treated as earned $74,384 from 1/1 – 6/30 [181 days/365 days*$150,000] and $75,616 from 7/1-12/31 [184 days/365 days*$150,000]. Partner A will be allocated $7,438 [$74,384*10%] and Partner H will be allocated $7,562 [$75,616*10%]. Note that this is one way to allocate the income. The partnership may use any reasonable method.

Change in Tax Year of the Partnership The transfer could result in a mandatory change in the partnership’s tax year. A partnership’s tax year is determined by reference to its partners. A partnership may not have a taxable year other than:

• The majority interest taxable year – this is the taxable year which, on each testing day, constituted the taxable year of one or more partners having an aggregate interest in partnership profits and capital of more than 50%.

Example – Partner A, an individual, transfers his 55% partnership interest to Corporation D, a C corporation with a year-end of June 30. Prior to the transfer, the partnership had a calendar year-end. As a result of the transfer, the partnership will be required to change its tax year to June 30 because Corporation D now owns the majority interest.

• If there is no majority interest taxable year or principal partners, (a partner having a 5% or more in the partnership profits or capital) then the partnership adopts the year which results in the least aggregate deferral.

Change in Partnership’s Accounting Method A transfer of a partnership interest may require the partnership to change its method of accounting. Generally, a partnership may not use the cash method of accounting if it has a C corporation as a partner. Therefore, a transfer of a partnership interest to a C corporation could result in the partnership being required to change from the cash method to the accrual method.

As described in this article, a transfer of a partnership interest involves an analysis of several tax consequences. An analysis should always be done to ensure that any tax issues are dealt with timely.

If you or your business are involved in a transfer described above, please contact your Marcum Tax Professional for guidance on tax treatment.

Related Insights & News

Presidential Election 2024: What Trump vs. Harris Could Mean for Federal Business Taxes

The outcome of the upcoming presidential election may significantly affect the changes in federal income taxes on businesses.

Clearing the Fog: Anticipating the Impact of the 2025 Tax Cliff

Maximize savings and sustainability: exploring the ira’s comprehensive energy incentives, employee retention tax credit (ertc) claims under scrutiny: key irs developments explained, irs update: ertc claim processing amid moratorium and increased scrutiny, upcoming events.

Innovate for Impact

Philadelphia, PA

Smart Selections: Enhancing Business Operations with the Right IT Systems

Wrigley Cyber Classic

Chicago, IL

Marcum Women’s Initiative: Coffee and Conversations

Nashville, TN

Synergy in Security and Operations: The Top Ten Benefits of Consolidating IT Providers for NOC and SOC Services

Mission Possible: Nonprofits in the Age of Digital Finance

Washington, DC

Open Enrollment for Employee Benefits – Things to Consider

Cyber Threats and Prevention: A Growing Concern for Businesses

Burlington, MA

Marcum New England Life Science & Biotech Summit

New Haven, CT

Building Success: Navigating Contracts, Legal Landscapes, and Accounting Matters 

Robotic Process Automation and AI: The Next Frontier in Finance Transformation

Marcum New England Construction Summit

Marcum Manufacturing Forum

Cleveland, OH

Building Hope: Mental Health and Suicide Prevention in the Construction Industry

Marcum Mid-South Construction Summit

Cocktails & Conversations

Providence, RI

Staying Proactive Not Reactive: Proposed Changes to the R&D Tax Credit Form 6765

Economic & Market Update

Marcum Women’s Initiative: Floral Arrangement Class

South Portland, ME

Marcum Ohio Construction Summit

Warrensville Heights, OH

Marcum Tech Top 40

Client Kickoff: Hawkeye Tailgate & Game Day 

Iowa City, IA

Dental Transition Services Social

Ballwin, MO

Foundations of Estate Planning – Wills, Trusts and other Essentials

Related service.

Tax & Business

Have a Question? Ask Marcum

Partnership

Sole proprietorship, limited partnership, compare businesses, employee rights, osha regulations, labor hours, personal & family, child custody & support, guardianship, incarceration, civil and misdemeanors, legal separation, real estate law, tax, licenses & permits, business licenses, wills & trusts, power of attorney, last will & testament, living trust, living will.

• Share Tweet Email Print

Assignment of Limited Liability Company Interest

By Joe Stone, J.D.

• Do All Members of an LLC Have to Sign the Purchase Contract?

As a limited liability company member, you usually have the right to assign your membership interest in the LLC to a nonmember, subject to the requirements of state LLC law. Typically, the assignment provides the nonmember with the right to receive your share of any LLC profits but does not give the nonmember any of your management rights. The remaining LLC members usually decide whether the nonmember is admitted as a member with management rights.

Assignments

An assignment involving your LLC membership occurs whenever there is a transfer of your property rights in the membership. The transfer of rights can occur voluntarily such as in a sale of your membership to cash out of the LLC. Another type of voluntary transfer involves using your membership to satisfy your personal debts in lieu of bankruptcy, generally referred to as an assignment for the benefit of creditors. A transfer of your membership to your legal heirs or designated beneficiaries occurs by operation of law upon your death. In each situation, the assignment results in a complete transfer of your property rights in your LLC membership.

LLC Membership Interest

An LLC is commonly considered a cross between a corporation and partnership. LLC members enjoy personal liability protection, as do a corporation's shareholders, and the ability to structure the LLC management to suit their own needs, as in a partnership. An LLC is also like a partnership in that the profits and losses of the LLC are passed through to each member just as in a partnership. As a result, your LLC membership consists of two parts: an economic interest -- the right to share in the profits and losses of the LLC; and a control interest -- the right to vote on and manage the affairs of the LLC.

Membership Transfer Rules

If a member assigns his LLC membership to a nonmember without the consent of the other members, state law typically limits the assignment to only economic rights, not control rights. For example, Arizona Revised Statute 29-732 states that “the assignment of an interest in a limited liability company does not…entitle the assignee to participate in the management of the business and affairs of the limited liability company or to become or to exercise the rights of a member.” The Revised Uniform Limited Liability Act, which has been adopted in nine states as of June 2013, contains a similar provision that states, "the transferor retains the rights of a member other than the interest in distributions transferred and retains all duties and obligations of a member." To acquire control rights, the LLC members must consent to extend full membership to the nonmember.

Other Considerations

LLC members usually create an operating agreement to govern their rights and duties to the LLC and each other. Unless specifically prohibited by state law, the members can agree to provisions in the operating agreement that alter the default rules that apply under state law. In anticipation of future assignments, the members can include in an operating agreement the rules for whether control rights can be assigned with economic rights and under what conditions.

• FindLaw: Legal Dictionary -- Assignment
• Texas Secretary of State: Selecting A Business Structure
• The Free Dictionary: Limited Liability Company
• Arizona Legislature: Arizona Revised Statute 29-732
• National Conference of Commissioners on Uniform State Laws: Revised Uniform Limited Liability Act
• National Conference of Commissioners on Uniform State Laws: Enactment Status Map -- RULLCA
• SBA.gov: Operating Agreements; The Basics

Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.

Related Articles

• How to Change Ownership of a California LLC
• How Does Equity Work in a Multimember LLC?
• Can an LLC Offer Both Preferred & Common Shares?

Tex. Bus. Orgs. Code Section 153.251 Assignment of Partnership Interest

Source: Section 153.251 — Assignment of Partnership Interest , https://statutes.­capitol.­texas.­gov/Docs/BO/htm/BO.­153.­htm#153.­251 (accessed Jun. 5, 2024).

Accessed: Jun. 5, 2024

§ 153.251’s source at texas​.gov

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

Do you have an opinion about this solution? Drop us a line.

Collateral Assignment of an Entity Interest: Economic v. Governance Rights

Posted on September 26, 2012 by Bernstein-Burkley

Bernstein-Burkley, P.C.

In these difficult economic times, debtors have become more creative in proposing additional or substitute sources of collateral to secure a debt or obtain a forbearance or loan modification. As real estate values have plummeted, alternatives have become more attractive, including an assignment of the debtor’s interest in an operating entity with good cash flow.

However, the recent decision of the Pennsylvania Superior Court in Zokaites v. Pittsburgh Irish Pubs, LLC , 962 A.2d 1220 (Pa. Super. 2008), appeal denied 972 A.2d 523 (Pa. 2009), provides food for thought in terms of structuring and drafting a collateral assignment of an interest in a limited liability company or partnership. In Zokaites , a creditor was attempting to enforce its judgment lien by executing upon the debtor’s interest in two limited liability companies (“LLC”) that owned and operated several Pittsburgh area restaurants. The creditor sought a court order to compel the debtor to transfer its ownership interest in the LLCs so those interests could be sold at sheriff’s sale. After much procedural wrangling in both state and bankruptcy court, the case ended up in the Superior Court, which looked to Pennsylvania’s Limited Liability Company Law, 15 Pa.C.S. §8901 et seq . (“LLC Law”), for guidance.

The Superior Court focused on a provision in the LLC Law that prohibits a transferee of an LLC interest from becoming a member or participating in the company’s management without the approval of all other LLC members. The same provision, however, allows a transferee to receive the LLC member’s distributions or other return of capital contributions. Because of this protection of an LLC’s “close-knit structure,” the Superior Court decided that a judgment creditor can secure a debtor’s economic rights to distributions and return of contributions from the LLC, but cannot obtain the debtor’s governance rights to vote and participate in managing the LLC. The Superior Court equated this remedy of obtaining the economic rights in an LLC interest to the “charging order” that is permitted against a partnership interest under Pennsylvania’s Uniform Partnership and Limited Partnership Acts (“Partnership Acts”).

In light of the decision in Zokaites , lenders considering accepting a collateral assignment of an entity interest should keep a few things in mind for due diligence and drafting purposes. First, where a debtor has interests in multiple related entities, have the debtor provide an organizational chart. It is often easier to understand a complex organizational structure from a chart or “tree” than from a description. The chart should show the relationship among the entities and include the names of each entity and the percentage interest the debtor owns. For example, in a recent transaction where several guarantors were proposing to pledge their interests in a variety of LLCs and partnerships that in turn were the general and limited partners of other entities, an organizational chart prepared by the debtor was a crucial tool in pinpointing who owned what and in targeting the collateral.

Second, once you understand what entity interest(s) the debtor owns, it is essential to carefully review a copy of the organizational agreement and any amendments (the LLC Operating Agreement or the Partnership Agreement) for each entity. Key provisions include transfer or assignment rights or restrictions and default and dissolution provisions. If the organizational agreement expressly permits assignment, then the limitations under the LLC Law and the Partnership Acts do not apply 1 . Most likely, however, the LLC or partnership interest will not be assignable without the other members’ or partners’ consent. It is also important to understand whether an assignment will trigger an unwanted result such as a dissolution or default.

Third, once you know what is owned and can be pledged, draft the assignment to specifically identify the entity interest being pledged. Taking into account the ruling in Zokaites , where not all of the LLC members or partners are involved, a pledge of economic rights only is more likely to be enforceable than a collateral assignment that appears to transfer governance and other rights as well. In most instances, the cash flow from the right to receive distributions, profits, and return of capital is the true collateral anyway.

In describing complex or multiple entity interests or owners, consider attaching as exhibits the organizational chart and a table identifying each debtor, the entity, and the percentage interest owned. Include in the body of the assignment representations and warranties by the debtor confirming all of the information on the chart and table as true, complete and correct and that the debtor’s interest has not already been pledged or assigned.

Fourth, since the creditor will not have governance rights, the pledge agreement should also contain covenants to protect the creditor’s right to receive distributions. Such covenants would include prohibiting the debtor from voting to amend the Operating or Partnership Agreement or to dissolve the entity. Another useful provision would be the debtor’s authorization for the LLC or partnership and its officers to recognize and give effect to the collateral assignment by paying distributions directly to the creditor or lender upon demand. Finally, when the assignment is being made by a married individual, if possible have the spouse join in to waive any marital or spousal interest.

Assignment of a debtor’s interest in an LLC or partnership can be a valuable and useful form of collateral. But the creditor should follow the money and remain mindful of the Zokaites decision by taking a pledge of the economic rights and leaving the governance rights alone, unless all of the entity owners consent.

1. Similar to the LLC Law, the Partnership Acts contain provisions that, unless otherwise agreed, the assignee of a partner’s interest does not become a partner or share in partnership liability and cannot exercise a partner’s management, inspection of records, or accounting rights, but has the right to profits. 15 Pa.C.S. §8344(a) and 15 Pa.C.S. §8562(a)(2)and (c).

We use cookies to give you the best online experience. By agreeing you accept the use of cookies in accordance with our cookie policy.