• Wendi Gundersen

A fellow member just transferred their interest to someone else—what now?

Some people may not realize it, but one of the great things about an LLC is that no one can force you to be in business with someone else.

In California, the default rule is that if a member sells or transfers any part of their interest in the LLC, the only thing transferred is the transferable interest. That means the transferee can get distributions according to the operating agreement. But they cannot vote or participate in management of the company.

The initial members can decide how to treat these transferees in the operating agreement—with some statutory restrictions. The default rule is that unanimous approval is needed for the transferee to be admitted into full membership, including voting rights. Sometimes members might allow for approval by just a majority of members or by the manager. They could also decide to eliminate the approval requirement entirely.

There are different reasons to go with any of these options. The main consideration—of course—is how important it is to you that you control who your fellow members are.