How to Transfer LLC Ownership in Alabama: 2025 Updates

If you have an LLC in Alabama and you wish to discontinue it, you don’t always have to dissolve it. You can transfer the ownership, and it will keep running the way it was. Transferring ownership of a Limited Liability Company (LLC) in Alabama is a relatively simple and straightforward process involving minimal paperwork. It can be partially or fully transferred to another owner.

LLCBuddy editors shared a step-by-step guide on how to transfer ownership of an LLC in Alabama. The steps might seem easy and doable. However, these are general steps and might need special attention for specific cities or regions in Alabama. Hence, it is recommended to consult an attorney or legal expert before taking the steps.

How an LLC Ownership Structure Works in Alabama

By now, you must know that a limited liability company is one of the simplest forms of business structure. The ownership and transferring it to others is even simpler. For an LLC in Alabama or any other state in the United States, the company is considered an independent entity that is separated from its owners, which means the owners are not personally liable for the company’s debts or legal obligations.

The ownership structure of an LLC in Alabama is determined by the percentage of ownership interests held by each member. These ownership interests can be distributed however the members see fit and are typically outlined in the Operating Agreement drafted in Alabama.

There is no maximum limit on the number of members an LLC in Alabama can have, and the members can be individuals, other LLCs, corporations, or even foreign entities. This flexibility allows for a wide range of business structures, from single-member LLCs in Alabama to large, multi-member LLCs with complex ownership arrangements.

What is Alabama LLC Buy-Sell Agreement in Ownership Transfer?

In Alabama, the buy-sell agreement is a part of your operating agreement. It explains the instructions for buying and selling the LLC ownership. For example, who can be the member of Alabama LLC, how will buy out and sell of the LLC be determined, whether the members of the LLC in Alabama will buy the shares of the leaving owner, and how – these are the points you have in the buy-sell agreement.

Buy Out Alabama LLC or Partial Transfer: In this case, the members of the LLC generally buy the shares of the owner who is leaving. As the LLC buys the owner’s interests, the shares get divided equally among the remaining Alabama LLC members. LLC members must approve the transfer, and then the Operating Agreement (OA) will be updated to exclude the departed owner.

If your LLC operating agreement does not specify these terms beforehand, you must follow Alabama state LLC law. In some states, ownership transfer does not simply take place. Instead, they have to dissolve the LLC to continue with the process. So, while you’re forming an Alabama LLC, make sure to create a buy-sell agreement beforehand.

Sell a Alabama LLC Or Fully Transfer: Selling an LLC or Fully Transferring the ownership is a bit more complicated than the buy-out process. In this condition, owners have the independent legal right to sell the interest to any third party. They do not need other members’ approval for this. The negotiation between the buyer and the seller involves complexities if there is no operating agreement in the first place. As an owner, you must find a buyer, write the change of ownership letter, set out other formalities, and voila! Your ownership transfer is done. The parties will settle the sale contract, including the LLC price, following Alabama state laws.

How to Transfer Alabama LLC Ownership

When an LLC member decides to step down from the owner’s position, they must transfer the ownership to someone else. It can be other existing members of the LLC or a third party. Transferring LLC ownership in Alabama is a common yet complex deed. LLC owners who want to transfer their ownership must follow some steps to do the task. Here are the following steps-

Step 1: Review Your Alabama LLC Operating Agreement

An operating agreement is a kind of non-mandatory document in many states. In Alabama, it is not mandatory to draft one. If you have one at the time of LLC formation in Alabama, then it would be easier for the owners to transfer the name. If not, then it should be filed at the time of transferring ownership. The operating agreement for the LLC in Alabama must be reviewed for the ownership transfer conditions and other legal requirements regarding the buy-out and sale of the LLC.

Step 2: Amend the Alabama Certificate of Formation

Changing/transferring ownership might lead to structural change at the managerial level. In that case, the LLCs must comply with the Alabama Secretary of State. To do so, one must file the Alabama Certificate of Formation amendment. Specifically in Texas, LLCs must submit a Public Information Report annually to the Texas Comptroller of Public Accounts. The managerial changes will be explained there.

As soon as the ownership transfer negotiation is done and the agreement is made with the updated change of ownership, file it with the Secretary of State. For that, you must amend the Certificate of Formation and get the Domestic LLC Amendment. Make the changes to the existing Certificate of Formation, get the amendment form, and submit it to the Alabama SOS along with other documents and the filing fee. Read how to amend Alabama Certificate of Formation in a simple way.

Step 3: Spread the News

Once the legal formalities are done, and the ownership of your LLC is transferred officially in Alabama, you must spread the word to the clients, partners, and other concerned people. Also, banks and other financial institutions should be notified about the ownership change. Business entities, vendors, and other officials you work with should also be notified.

Step 4: Obtain a New EIN (optional)

You might need to apply for a new EIN based on the LLC ownership transfer. After officially transferring ownership, you must check with the IRS whether you need a new EIN. There is a formal form to notify the IRS about the LLC ownership transfer. Get the form from their website, enter the details, and submit it. You will get notified whether you need to apply for a new EIN.

Why Transfer LLC Ownership in Alabama

There can be several reasons why the transfer of LLC ownership in Alabama takes place in any organization. Some of the most common reasons include the following-

Death of the LLC owner
Separation or Divorce of the LLC Owners
LLC owners do not wish to continue their association with the organization
LLC owners want to appoint a new member (owner)
LLC owners want to sell the business off to someone else

These are some of the common reasons why an LLC ownership gets transferred in Alabama. Transferring LLC ownership requires a comprehensive LLC operating agreement in Alabama. This is an internal document every LLC should have at the time of formation.

The Role of Alabama Operating Agreement in LLC Ownership Transfer

Creating an Operating Agreement in Alabama is one of the major steps in forming a limited liability company (LLC). However, many states do not require an Operating Agreement. California, New York, Delaware, Maine, Nebraska, and Missouri are the states where an LLC operating agreement is mandatory.

Even when your state does not necessarily need you to file the operating agreement, it is recommended that you should have it to avoid any internal disagreements or issues in the future.
LLCBuddy Editorial Team

An operating agreement is an internal document explaining all the procedures, including ownership transfer, dissolution, LLC operation, members, and other LLC-related processes. Operations, such as dissolution and ownership transfer, occur based on those written regulations.

If there is no Alabama Operating Agreement or it does not have clear ownership transfer or buy-sell agreement provisions, the transfer takes place based on Alabama state law.

What to Include in Alabama Operating Agreement

This official document outlines the company’s structure, the members’ details, the dissolution process, and a lot more. Hence, it is always wise to have one to avoid any confusion in the future, whether your state needs it or not. The LLC operating agreement should have the following points-

Whether LLC members are related to each other and what type of relationships they share
Managers’ rights and responsibilities
Operating Agreement Amendment conditions
Members’ profit and loss shares
Alabama LLC Tax structures
Transfer of ownership rules and procedure
Dissolution of Alabama LLC

If your operating agreement explains all the above points, you must follow it for the ownership transfer.

Reasons to Transfer Alabama LLC Ownership

There can be many issues that lead to ownership transfer. One of the most common issues is the death of the owner. There can be other issues where transfer of ownership occurs. Here are some issues to consider,

Divorce Or End of Marriage: In some cases, according to the divorce decree, the ownership transfers to the spouse. If the LLC in Alabama has an operating agreement and the ownership transfer condition is specified, then the LLC must follow the Alabama operating agreement to proceed.

Death of a Member: This is the most common issue in LLCs. In Alabama, if a member dies, the ownership, by default, transfers to the legal heirs of the deceased person. However, in this case, the legal heirs (wife/husband/kids) do not get any managerial power or authority. They continue enjoying the benefits, such as a share of the profit and others. But they won’t get any other power in the company. In such situations, other members of the Alabama LLC often buy out the deceased’s interests.

Dissolution of Alabama LLC: If any member/owner plans to leave the company, the LLC gets dissolved and reformed with the new policy and operating agreement. The members and managers make this sort of decision at the time of the creation of the operating agreement.

FAQs

Can an Alabama LLC be sold or transferred to a new owner?

Yes, an Alabama LLC can be sold or transferred to a new owner.

What is the process for transferring ownership of an Alabama LLC?

The process for transferring ownership of an Alabama LLC typically involves selling your membership interest to another individual.

Can an Alabama LLC agreement dictate the process for transferring ownership?

Yes, the operating agreement of an Alabama LLC can outline the procedure for transferring ownership.

Do I need to update any official documents with the state of Alabama when transferring ownership of an LLC?

Yes, you will need to update the official documents on file with the Alabama Secretary of State when transferring ownership of an LLC.

Can the new owner of an Alabama LLC be added to the existing operating agreement?

Yes, the new owner of an Alabama LLC can be added to the existing operating agreement or a new agreement can be drafted.

Is it necessary to notify the Alabama Secretary of State when transferring ownership of an LLC?

Yes, it is necessary to notify the Alabama Secretary of State when transferring ownership of an LLC.

Are there any fees associated with transferring ownership of an Alabama LLC?

There may be fees associated with transferring ownership of an Alabama LLC, such as filing fees with the Alabama Secretary of State.

Can ownership of an Alabama LLC be transferred to another LLC?

Yes, ownership of an Alabama LLC can be transferred to another LLC.

Can a non-member of an Alabama LLC purchase ownership in the company?

Yes, a non-member of an Alabama LLC can purchase ownership in the company.

What happens if the members of an Alabama LLC cannot agree on transferring ownership?

If the members of an Alabama LLC cannot agree on transferring ownership, the issue may need to be resolved through mediation or arbitration.

Are there any restrictions on transferring ownership of an Alabama LLC in the operating agreement?

Yes, there may be restrictions on transferring ownership of an Alabama LLC outlined in the operating agreement.

Can an Alabama LLC member sell their ownership interest without the consent of other members?

The ability to sell an ownership interest in an Alabama LLC without the consent of other members will depend on the terms outlined in the operating agreement.

Is there a process for valuing the membership interest of an Alabama LLC when transferring ownership?

Yes, there may be a specific process for valuing the membership interest of an Alabama LLC when transferring ownership, as outlined in the operating agreement.

Can the ownership of an Alabama LLC be gifted to someone else?

Yes, the ownership of an Alabama LLC can be gifted to someone else, subject to any restrictions in the operating agreement.

Are there any tax implications to consider when transferring ownership of an Alabama LLC?

Yes, there may be tax implications to consider when transferring ownership of an Alabama LLC, such as capital gains tax.

How long does it typically take to transfer ownership of an Alabama LLC?

The timeframe for transferring ownership of an Alabama LLC can vary depending on the specific circumstances of the transfer.

Can the transfer of ownership be retroactive in Alabama?

The transfer of ownership of an Alabama LLC can be made retroactive to a specific date if specified in the operating agreement.

Are there any specific requirements for transferring ownership of an Alabama LLC for foreign-owned entities?

Yes, there may be specific requirements for transferring ownership of an Alabama LLC for foreign-owned entities, such as additional filings or documentation.

Is it necessary to notify creditors when transferring ownership of an Alabama LLC?

Yes, it is necessary to notify creditors when transferring ownership of an Alabama LLC to ensure all liabilities are properly addressed.

Can a sole member of an Alabama LLC transfer ownership to another individual?

Yes, a sole member of an Alabama LLC can transfer ownership to another individual, subject to any restrictions in the operating agreement.

Are there any residency requirements for new owners of an Alabama LLC?

There are no residency requirements for new owners of an Alabama LLC in Alabama.

Can an Alabama LLC be converted into a different type of business entity during the ownership transfer process?

Yes, an Alabama LLC can be converted into a different type of business entity during the ownership transfer process, such as a corporation.

Can an Alabama LLC continue to operate during the ownership transfer process?

Yes, an Alabama LLC can continue to operate during the ownership transfer process as long as the transfer does not disrupt the day-to-day operations of the business.

Does the Alabama Secretary of State need to approve the transfer of ownership of an LLC?

The Alabama Secretary of State does not need to approve the transfer of ownership of an LLC, but the necessary paperwork must be filed with the Secretary of State’s office.

What happens to the assets and liabilities of an Alabama LLC during the ownership transfer process?

The assets and liabilities of an Alabama LLC will typically transfer to the new owner along with the ownership interest.

Can a member of an Alabama LLC be forced to sell their ownership interest?

A member of an Alabama LLC can be forced to sell their ownership interest if there are provisions outlining this in the operating agreement.

Can an Alabama LLC dissolve instead of transferring ownership to a new owner?

Yes, an Alabama LLC can dissolve instead of transferring ownership to a new owner if the members choose to do so.

Can an Alabama LLC be transferred to a minor?

An Alabama LLC can be transferred to a minor, but a legal guardian may need to be appointed to manage the ownership interest on the minor’s behalf.

Are there any specific laws or regulations in Alabama that govern the transfer of ownership of an LLC?

Yes, there are specific laws and regulations in Alabama that govern the transfer of ownership of an LLC, so it is important to follow these guidelines when transferring ownership.

Can I transfer ownership of my Alabama LLC?

Yes, ownership of an Alabama LLC can be transferred.

In Conclusion

As you all know, forming a limited liability company is much easier than forming a corporation, a partnership, or any other type of business. The ease of transferring ownership from one to another is one of the many reasons for entrepreneurs to start an LLC. In Alabama, transferring LLC ownership does not need a lot of paperwork or steps. You must update the formation papers with the new ownership information, file the amendment to the formation document, tell people about it, and comply with the state.

Though it seems easy to file documents while transferring ownership, it could be more complex than just these steps. Based on the local regulations, nature of business, or some other administrative rules, transferring ownership in Alabama might take more than what it looks like. It is recommended to consult a professional or attorney before you take such an important business decision.