How to Transfer LLC Ownership in Illinois


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Transfer LLC ownership in Illinois

Transferring ownership of a Limited Liability Company (LLC) in Illinois is a relatively simple and straightforward process involving minimal paperwork. Establishing an LLC in Illinois is less complicated than other business structures like corporations or partnerships, making it easier to transfer ownership. You can partially or fully transfer your LLC ownership by following a few simple steps. However, it is recommended to consult a legal expert to address any potential complexities that may arise in the future.

When setting up an LLC in Illinois, also referred to as The Prairie State, it is crucial to follow several essential steps. One of these steps includes creating an Operating Agreement, a document that allows owners to transfer their shares to third parties or other LLC members. In this article, we will provide a comprehensive guide on how to transfer LLC ownership in Illinois. Be sure to read the entire article to learn more about buying and selling your LLC ownership.

What is an LLC and its Ownership Structure in Illinois

A Limited Liability Company (LLC) is a popular business structure in the United States, combining the advantages of both corporations and partnerships. In Illinois, an LLC is characterized by a flexible ownership structure that allows for easier management and limited liability protection for its owners, also known as members.

An LLC in Illinois is a separate legal entity 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 Illinois is determined by the percentage of ownership interests held by each member. These ownership interests can be distributed in any way the members see fit and are typically outlined in the Operating Agreement.

There is no maximum limit on the number of members an LLC in Illinois 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 to large, multi-member LLCs with complex ownership arrangements.

Understanding the LLC Ownership Transfer in Illinois

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 Illinois is a common yet complex deed. LLC owners, who want to transfer their ownership, must follow some steps to do the task. Before we dig deeper into the steps and details of transferring LLC ownership, let’s look at the reasons why LLC ownership takes place.

Why Transfer LLC Ownership in Illinois

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

  1. Death of the LLC owner
  2. Separation or Divorce of the LLC Owners
  3. LLC owners do not wish to continue their association with the organization
  4. LLC owners want to appoint a new member (owner)
  5. 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 Illinois. Transferring LLC ownership requires a comprehensive operating agreement. This is an internal document every LLC should have at the time of formation.

The Role of Illinois Operating Agreement in LLC Ownership Transfer

Creating an Operating Agreement in Illinois is one of the major steps in forming a limited liability company (LLC). However, many states do not require to have 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 Illinois Operating Agreement or it does not have clear ownership transfer or buy-sell agreement provisions, the transfer takes place based on Illinois state law.

What to Include in Illinois 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 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
  • Illinois LLC Tax structures
  • Transfer of ownership rules and procedure
  • Dissolution of Illinois LLC

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

How Does Illinois LLC Buy-Sell Agreement Work?

In Illinois, 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 Illinois LLC, how will buy out and sell of the LLC be determined, whether the members of the LLC in Illinois will buy the shares of the leaving owner, and how – these are the points you have in the buy-sell agreement.

Buy Out Illinois 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 Illinois LLC members. LLC members must approve the transfer, and then the Operating Agreement (OA) will be updated to exclude the departed owner.

If your Illinois operating agreement does not specify these terms beforehand, you must follow Illinois 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 Illinois LLC, make sure to create a buy-sell agreement beforehand.

Sell a Illinois 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 Illinois state laws.

How to Transfer Illinois LLC Ownership

You need to follow a few simple steps to transfer ownership of your LLC in Illinois. As mentioned, you must review the operating agreement first to get everything in the same space. Here are the following steps-

Step 1: Review Your Illinois LLC Operating Agreement

Many states do not need to file the operating agreement. Hence, it is not mandatory for any LLC to have it while forming an LLC. If your LLC has no operating agreement, you must draft one while transferring the LLC ownership. On the other hand, if you already have an operating agreement, you must review it for the ownership transfer conditions and other legal requirements regarding the buy-out and sale of the LLC.

Step 2: Amend the Illinois Articles of Organization

Changing/transferring ownership might lead to structural change at the managerial level. In that case, the LLCs must comply with the Illinois Secretary of State. To do so, one must file the Illinois Articles of Organization 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 Articles of Organization and get the Articles of Amendment. Make the changes to the existing Articles of Organization, get the amendment form, and submit it to the Illinois SOS along with other documents and the filing fee. Read how to amend Illinois Articles of Organization 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 Illinois, 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 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.

Reasons to Transfer Illinois 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 Illinois has an operating agreement and the ownership transfer condition is specified, then the LLC must follow the Illinois operating agreement to proceed.

Death of a Member: This is the most common issue in LLCs. In Illinois, 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 Illinois LLC often buy out the deceased’s interests.

Dissolution of Illinois 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

What is an LLC in Illinois?
An LLC in Illinois is a limited liability company that is registered in the state of Illinois. It provides liability protection to its owners, known as members, from the company’s debts and obligations.
How do I transfer ownership of an LLC in Illinois?
To transfer ownership of an LLC in Illinois, the current owners must first complete and file an assignment of LLC interest document with the Illinois Secretary of State. The document names the new owner and describes the terms of the transfer, such as the percentage of the ownership and any monetary or in-kind consideration.
Can an LLC in Illinois have multiple owners?
Yes, an LLC in Illinois can have multiple owners, or members. Each member’s ownership percentage must be clearly stated in the LLC’s operating agreement.
What documents do I need to transfer ownership of an LLC in Illinois?
To transfer ownership of an LLC in Illinois, you must file an assignment of LLC interest document with the Illinois Secretary of State. The document should include the name of the new owner, the percentage of the ownership, and any monetary or in-kind consideration.
Who needs to sign the assignment of LLC interest document when transferring ownership of an LLC in Illinois?
All current owners must sign the assignment of LLC interest document when transferring ownership of an LLC in Illinois.
Can I transfer ownership of an LLC to another person or entity?
Yes, you can transfer ownership of an LLC to another person or entity. The transfer must be documented with an assignment of LLC interest document and filed with the Illinois Secretary of State.
How do I file an assignment of LLC interest document with the Illinois Secretary of State?
An assignment of LLC interest document must be signed by all current owners, notarized, and filed with the Illinois Secretary of State, along with the required filing fee.
What happens if I don’t file an assignment of LLC interest document when transferring ownership of an LLC in Illinois?
If you do not file an assignment of LLC interest document when transferring ownership of an LLC in Illinois, the transfer will not be legally recognized by the state. The new owner may not be able to take advantage of the liability protection that comes with owning a limited liability company.
Does an LLC in Illinois pay taxes?
Yes, an LLC in Illinois is required to pay taxes on income earned in the state, just like any other business. The LLC files an annual report and income tax return with the Illinois Department of Revenue.
Is there a fee to transfer ownership of an LLC in Illinois?
Yes, there is a filing fee required to transfer ownership of an LLC in Illinois. The filing fee is paid to the Illinois Secretary of State when the assignment of LLC interest document is filed.
Who is responsible for the debts of an LLC in Illinois after ownership is transferred?
The new owner of an LLC in Illinois is responsible for the debts of the LLC, even after ownership is transferred.
Does transferring ownership of an LLC in Illinois require a court order?
No, transferring ownership of an LLC in Illinois does not require a court order. The transfer must be documented with an assignment of LLC interest document and filed with the Illinois Secretary of State.
What is the process for transferring ownership of an LLC in Illinois?
The process for transferring ownership of an LLC in Illinois includes completing and filing an assignment of LLC interest document with the Illinois Secretary of State, paying the required filing fee, and obtaining the signature of all current owners.
Does the owner of an LLC in Illinois have to be an Illinois resident?
No, the owner of an LLC in Illinois does not have to be an Illinois resident.
How do I change the name of an LLC in Illinois?
To change the name of an LLC in Illinois, the current owners must file an amendment to the LLC’s articles of organization with the Illinois Secretary of State. The amendment must include the current name of the LLC and the new name.
What information is required to file an amendment to the LLC’s articles of organization in Illinois?
To file an amendment to the LLC’s articles of organization in Illinois, you must include the current name of the LLC and the new name, as well as the signature of at least one member.
Is there a fee to file an amendment to the LLC’s articles of organization in Illinois?
Yes, there is a filing fee required to file an amendment to the LLC’s articles of organization in Illinois. The filing fee is paid to the Illinois Secretary of State when the amendment is filed.
How do I dissolve an LLC in Illinois?
To dissolve an LLC in Illinois, the owners must file a Certificate of Dissolution with the Illinois Secretary of State. The Certificate of Dissolution must include the LLC’s name and the signature of at least one member.
Is there a fee to dissolve an LLC in Illinois?
Yes, there is a filing fee required to dissolve an LLC in Illinois. The filing fee is paid to the Illinois Secretary of State when the Certificate of Dissolution is filed.
Do I need to notify the Illinois Department of Revenue when transferring ownership of an LLC in Illinois?
Yes, you must notify the Illinois Department of Revenue when transferring ownership of an LLC in Illinois. The new owner must obtain a new tax ID number and file an annual report and income tax return with the Department.
How long does it take to transfer ownership of an LLC in Illinois?
It typically takes about two weeks for the Illinois Secretary of State to process an assignment of LLC interest document and transfer ownership of an LLC in Illinois.
How do I obtain a tax ID number for an LLC in Illinois?
To obtain a tax ID number for an LLC in Illinois, you must file an Application for Tax Identification Number with the Illinois Department of Revenue.
What information do I need to file an application for a tax ID number in Illinois?
To file an application for a tax ID number in Illinois, you must have the LLC’s name, address, and contact information, as well as the name and Social Security number of the owner or authorized representative.
Do I need to file an annual report and income tax return for an LLC in Illinois?
Yes, an annual report and income tax return must be filed with the Illinois Department of Revenue for an LLC in Illinois. The return must be filed by the 15th day of the 4th month after the close of the LLC’s fiscal year.
How do I change the registered agent for an LLC in Illinois?
To change the registered agent for an LLC in Illinois, the owners must file an amendment to the LLC’s articles of organization with the Illinois Secretary of State. The amendment must include the name and address of the new registered agent.
Is there a fee to change the registered agent for an LLC in Illinois?
Yes, there is a filing fee required to change the registered agent for an LLC in Illinois. The filing fee is paid to the Illinois Secretary of State when the amendment is filed.
Is there a form I need to fill out to transfer ownership of an LLC in Illinois?
Yes, you must fill out an assignment of LLC interest document to transfer ownership of an LLC in Illinois. The document must be signed by all current owners, notarized, and filed with the Illinois Secretary of State, along with the required filing fee.
Is there a fee associated with transferring ownership of an LLC in Illinois?
Yes, there is a fee of $150 associated with transferring ownership of an LLC in Illinois.
What documents are required for transferring ownership of an LLC in Illinois?
The documents required for transferring ownership of an LLC in Illinois include a Transfer of Membership Interest form and a copy of the LLC’s articles of organization.
When is the Transfer of Membership Interest form due to the Illinois Secretary of State?
The Transfer of Membership Interest form is due to the Illinois Secretary of State within 30 days of the transfer of ownership.
What happens if the Transfer of Membership Interest form is not filed with the Illinois Secretary of State?
If the Transfer of Membership Interest form is not filed with the Illinois Secretary of State within 30 days of the transfer of ownership, then the transfer of ownership will not be considered valid and the new owner may not be able to exercise the rights and privileges associated with ownership of the LLC.
Can I transfer ownership of an LLC in Illinois without the consent of the other members of the LLC?
Yes, it is possible to transfer ownership of an LLC in Illinois without the consent of the other members of the LLC, but the current owner must still provide a copy of the LLC’s articles of organization to the new owner.
Are there any special rules for transferring ownership of an LLC in Illinois?
Yes, the rules for transferring ownership of an LLC in Illinois are set forth in the state’s Business Corporation Act. It is important to familiarize yourself with these rules before transferring ownership of an LLC in Illinois.

Also Read

Why Illinois LLC Ownership Transfer is So Important

One of the key reasons why ownership transfer in an LLC is so important is the impact it can have on the company’s management and decision-making. LLCs operate under a structure where owners, known as members, have varying levels of control and influence over the business. When ownership is transferred, it can alter the balance of power within the company, potentially affecting how decisions are made and the direction in which the business is taken.

Furthermore, transferring ownership in an LLC can have tax implications for both the company and the new owner. In Illinois, ownership transfer can trigger tax consequences that must be carefully considered and planned for. Failing to properly handle the transfer of ownership can result in unexpected tax liabilities, which can significantly impact the financial health of the business and the new owner.

Beyond the legal and financial implications, ownership transfer in an LLC plays a crucial role in maintaining the company’s continuity and stability. A well-executed transfer of ownership ensures that the business can seamlessly transition to new owners, allowing it to continue its operations without disruption. This is particularly important in Illinois, where businesses operate in a competitive and rapidly evolving market.

Additionally, ownership transfer is vital for protecting the interests of all parties involved. By following proper procedures and documentation when transferring ownership in an LLC, both the outgoing and incoming owners can safeguard their rights and prevent disputes or conflicts from arising in the future. Clear and transparent ownership transfer processes can help mitigate potential legal risks and ensure that the interests of all members are properly accounted for.

In conclusion, ownership transfer in an LLC is a critical process that should not be overlooked or underestimated. Whether due to changes in ownership interests, management responsibilities, or tax implications, ensuring a smooth and well-planned transfer of ownership is essential for the long-term success and stability of the business. In Illinois, where businesses face unique challenges and opportunities, understanding the importance of ownership transfer in an LLC is essential for navigating the complexities of the state’s business landscape. By recognizing and addressing the importance of ownership transfer, LLC owners can proactively protect their interests, maintain business continuity, and set their company up for long-term success.

Conclusion

Transferring LLC ownership in Illinois 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. LLCs can hire professional services to do the tasks. This will ease the work.

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