Formalities when selling the shares of an LLC
LLCs and businesses with a corporate structure and corporate roles have specific legal rules – such as filing, registry and transactional agreements – that must be formally submitted or filed before equity can be granted or shares transferred. This is not just for bureaucracy’s sake: the idea is that this paper trail will help increase transparency, trust and shareholder clarity.
Articles of Incorporation and Share Transfers
An LLC is both a corporate entity unto itself and a public entity, insofar as it may respond to external shareholders and be required to follow the law of the land. Divvying up equity or transferring shares is not an obvious “sale” but, in essence, that is what share transfers or selling the shares of an LLC mean. Many of the details of selling the shares of an LLC will depend on the initially filed Articles of Incorporation, that would outline authorized shares, par value, issued shares and issued price. Any sale of shares is essentially a granting of equity. And any granting of equity in this manner is to technically say that the “structure” of the company is changing. The “owners” of the shares must, in effect, be formally recognized.
What Selling the Shares of a Company Really Entails
Again, the extent of the formalities that must be followed varies from country to country. Some nations require a due process to be followed specifically, which includes information filing, submission to various state and governmental organizations as to the change in corporate structure, as well as specific accounting practices that must keep a record of these changes. Yet, other countries require that selling the shares of the company only occur if there is unanimous consent amongst the existing members. Selling the shares of a company to initiate a buy-out, takeover or exit of a particular owner of the company would mean a process of share transfer. In this case, share transfer agreements must outline the sale and details of the transaction, as well as what the obligations of the new shareowner is, under the corporate structure.
It’s good for companies to comply with these formalities not only to keep auditors happy. Memorializing these transfers of shares or new ownership also help the business take a retrospective look as to its direction of growth and change. It can make better decisions alter management structures that will be responsive to its future plans.