How to Transfer LLC Ownership in Maryland: 2024 Updates

If you have an LLC in Maryland 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 Maryland 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 Maryland. The steps might seem easy and doable. However, these are general steps and might need special attention for specific cities or regions in Maryland. Hence, it is recommended to consult an attorney or legal expert before taking the steps.

How an LLC Ownership Structure Works in Maryland

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 Maryland 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 Maryland 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 Maryland.

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

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

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

Buy Out Maryland 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 Maryland 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 Maryland 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 Maryland LLC, make sure to create a buy-sell agreement beforehand.

Sell a Maryland 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 Maryland state laws.

How to Transfer Maryland 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 Maryland 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 Maryland LLC Operating Agreement

An operating agreement is a kind of non-mandatory document in many states. In Maryland, it is not mandatory to draft one. If you have one at the time of LLC formation in Maryland, 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 Maryland 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 Maryland Articles of Organization

Changing/transferring ownership might lead to structural change at the managerial level. In that case, the LLCs must comply with the Maryland Secretary of State. To do so, one must file the Maryland 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 Maryland SOS along with other documents and the filing fee. Read how to amend Maryland 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 Maryland, 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 Maryland

There can be several reasons why the transfer of LLC ownership in Maryland 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 Maryland. Transferring LLC ownership requires a comprehensive LLC operating agreement in Maryland. This is an internal document every LLC should have at the time of formation.

The Role of Maryland Operating Agreement in LLC Ownership Transfer

Creating an Operating Agreement in Maryland 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 Maryland Operating Agreement or it does not have clear ownership transfer or buy-sell agreement provisions, the transfer takes place based on Maryland state law.

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

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

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

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

Dissolution of Maryland 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

How can I transfer ownership of my Maryland LLC?

Ownership of a Maryland LLC can be transferred by selling or gifting membership interests to another individual or entity.

Do I need to update any documents with the state of Maryland when transferring ownership of my LLC?

Yes, you will need to update the Articles of Organization and any operating agreements to reflect the new ownership structure.

Can ownership of a Maryland LLC be transferred to a non-resident of the state?

Yes, ownership of a Maryland LLC can be transferred to an individual or entity that is not a resident of the state.

Are there any fees associated with transferring ownership of a Maryland LLC?

There may be filing fees with the Maryland Department of Assessments and Taxation when updating ownership information for an LLC.

How long does it take to complete the ownership transfer process for a Maryland LLC?

The timeline for transferring ownership of a Maryland LLC can vary but typically takes a few weeks to complete.

Do I need to notify the state of Maryland when transferring ownership of my LLC?

Yes, you are required to update ownership information with the Maryland Department of Assessments and Taxation when ownership of an LLC changes.

Can ownership of a Maryland LLC be transferred to a minor?

It is possible to transfer ownership of a Maryland LLC to a minor, but additional legal considerations may apply.

Can I transfer ownership of my Maryland LLC to a trust?

Yes, ownership of a Maryland LLC can be transferred to a trust as long as the trust is properly created and maintained.

Can I transfer ownership of my Maryland LLC without the consent of all members?

Generally, all members of an LLC must consent to the transfer of ownership unless otherwise specified in the operating agreement.

What happens if I do not update ownership information with the state of Maryland after transferring ownership of my LLC?

Failure to update ownership information with the state of Maryland could result in penalties and potential legal issues for the LLC.

How do I transfer ownership of my Maryland LLC?

Ownership of a Maryland LLC can be transferred by selling or gifting membership interests to another individual or entity.

Do I need to update the ownership information with the state of Maryland?

Yes, you will need to update the ownership information of your Maryland LLC with the Maryland Department of Assessments and Taxation.

What forms do I need to fill out to transfer ownership of my Maryland LLC?

To transfer ownership of a Maryland LLC, you may need to fill out and submit an Articles of Restatement or an amended Articles of Organization.

Can the operating agreement of a Maryland LLC be updated to reflect the change in ownership?

Yes, the operating agreement of a Maryland LLC can be updated to reflect any changes in ownership, including the addition or removal of members.

Do I need to obtain consent from all members before transferring ownership of a Maryland LLC?

Depending on the terms outlined in the operating agreement of the Maryland LLC, you may need to obtain consent from all existing members before transferring ownership.

How long does it take to process the transfer of ownership for a Maryland LLC?

The processing time for transferring ownership of a Maryland LLC can vary, but it typically takes a few weeks to a month for the changes to be reflected with the state.

Can a Maryland LLC have multiple owners?

Yes, a Maryland LLC can have multiple owners who are referred to as members.

What is the process for adding a new member to a Maryland LLC?

To add a new member to a Maryland LLC, the existing members would need to agree to the transfer of ownership and update the relevant documents with the state.

Can ownership of a Maryland LLC be transferred without notifying the state?

It is important to notify the state of any changes in ownership for a Maryland LLC to ensure that the business is in compliance with state regulations.

Can an LLC operating agreement in Maryland specify the process for transferring ownership?

Yes, an LLC operating agreement in Maryland can outline the procedures for transferring ownership.

Are there any restrictions on who can become an owner in a Maryland LLC?

No, Maryland LLC law does not impose restrictions on who can become an owner in an LLC.

What documents need to be signed for the transfer of LLC ownership in Maryland?

The transfer of ownership in a Maryland LLC typically requires a written assignment of membership interest.

Is there a fee associated with transferring ownership of an LLC in Maryland?

Maryland does not typically require a fee for transferring ownership of an LLC.

Can ownership of a Maryland LLC be transferred to a foreign entity?

Yes, ownership of a Maryland LLC can be transferred to a foreign entity.

Can an LLC member transfer their ownership interest without the consent of other members in Maryland?

LLC members in Maryland can typically transfer their ownership interest without the consent of other members, unless the operating agreement states otherwise.

Do I need to update the articles of organization with the state of Maryland after transferring ownership?

No, the articles of organization do not need to be updated with the state of Maryland when transferring ownership.

Can the ownership transfer of a Maryland LLC be done online?

Ownership transfers for Maryland LLCs are typically done by signing a written document, not online.

What happens if the ownership transfer of an LLC in Maryland is not documented?

It is advisable to document the ownership transfer of an LLC in Maryland to avoid future disputes or misunderstandings.

Can ownership be transferred in a Maryland LLC without a formal written agreement?

While a formal written agreement is recommended, ownership can be transferred in a Maryland LLC by other means of documentation.

Are there any tax implications associated with transferring ownership of a Maryland LLC?

There may be tax implications associated with transferring ownership of a Maryland LLC, so it is recommended to consult a tax professional.

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 Maryland, 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 Maryland 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.