The member assigns all or part of his interest until the debt is satisfied from the proceeds of the business.
Courts have ruled that even a de minimus amount determined in any way to be compensation for the partnership interest will cast the transaction as a sale.
Unlike corporate shareholders who are usually one step removed from the action, LLC members often have a hand in the day-to-day operations of the company.
A transfer of an LLC interest where compensation is being paid is treated as a sale or exchange.
The selling member will usually have a taxable gain or loss on the sale.
Alternatively, state law may restrict any assignment except as allowed in either corporate document.
If assignment is not addressed in either corporate document, then assignments are either allowed or not based solely on the generalized statement found in the state's LLC statutes.
Even if the departing member is not being paid for his interest in the LLC, there are several advantages to making an assignment of the LLC interest.
First, in many cases either state law or the LLC’s operating agreement may restrict the ability of a member to unilaterally withdraw.
Assignments are addressed by state law, and even though the specifics are left to the individual LLC's articles of organization and operating agreement, state law sets out the basic requirements for handing off a member's share of an LLC.
An LLC member may decide to assign a percentage of his membership interest to a lender as collateral for a loan.