Key Insight
Buying an LLC's membership interests is equivalent to buying stock in a corporation. The due diligence and legal considerations are the same — but the terminology and documentation differ.
LLC Tax Flexibility
Single-member LLCs: treated as a disregarded entity by default — taxed on the owner's Schedule C.
Multi-member LLCs: treated as a partnership by default — file Form 1065, with members receiving K-1s.
LLC can elect C-corp or S-corp tax treatment by filing the appropriate elections with the IRS.
Acquiring an LLC
When acquiring an LLC through an asset purchase: buyer purchases specific assets of the LLC; the LLC entity and membership interests stay with the seller.
When acquiring through a membership interest purchase (equivalent of stock sale): buyer acquires the actual LLC interests, stepping into the seller's shoes as a member. The LLC continues operating unchanged; all contracts, licenses, and liabilities remain with the entity.
Operating Agreement
The LLC's operating agreement governs ownership, management, and member rights. In an acquisition:
- Existing operating agreement must be reviewed for transfer restrictions, right-of-first-refusal, or consent requirements
- The operating agreement will be amended or replaced post-close to reflect new ownership
- If the buyer is a single member, the operating agreement may be simplified or converted to single-member form
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