Wednesday, July 6, 2011

Documenting LLC Ownership Interests

Q. How can I show evidence of a sale or transfer of an LLC in MO? My son and I own 50% of a family LLC and my husband has either given or sold the LLC to his brother in KS who did own only 1%. Sandra, Mo
A. I am a little confused by the question; however, I read the situation as one where your husband has attempted to sell an LLC ownership interest to his brother that you believe you and your son have an ownership interest in. Further, your issue is how to prove or document that you and your son own a 50% interest in an LLC now claimed by your brother-in-law.

This is a good question as the ownership interests of the respective members is not (to my knowledge) recorded in the annual report filed with the Missouri Secretary of State. However, the ownership interest of each member should be recorded in the LLC operating agreement. If your company does not have an operating agreement (or the ownership interests have changed and the new percentages not documented) then the next best document source is probably the LLC's annual federal income tax report (which is most likely an IRS form 1065 although an LLC can file another form depending on its tax status). If the LLC is taxed as a partnership (which is the most common form of taxation for LLC's with more than one member), each member is supposed to receive a form K-1 when the tax return for each year is filed. The form K-1 contains the ownership interest in the LLC for the member.

Other than that, the LLC should maintain internal books and records that record the ownership interest of each member. RSMO § 347.091 sets out the documents each LLC is required to maintain and the right of a member to inspect said documents.


Anonymous said...

I have proof of the percentage of ownership. We need to find proof of the transfer or sale. It is now in another state where the business is operating from, with the same clients and name of business. The original business is idle in Mo.

jjray said...

That is another issue then. You are asking about a situation where the customers and / or assets of an existing LLC are moved to a new LLC perhaps without compensation to the original LLC. There may or may not be documentation of sale of the business to a new LLC. That's a complicated issue involving potential breach of contract, breach of the fiduciary duty LLC members owe to each other. It is a matter requiring the assistance of an attorney. Sorry but I don't have any more to add.

Anonymous said...

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