There are many factors that you must consider before attempting to sell your minority interest in a New Jersey LLC. First, you must determine whether the operating agreement places any limitations on your ability to transfer your interest. The operating agreement is the agreement between the members that addresses, among other things, the relations among the members. Commonly, an operating agreement will contain a section that addresses whether the members may sell their interest to a third party and, if so, the circumstances under which such a sale may take place. For example, some operating agreements require that the member that seeks to sell their interest must first offer the interest to the remaining members for a set price or for fair market value. Because each operating agreement is different, it is essential that you review your operating agreement and determine your rights if you are considering selling your minority interest in a New Jersey LLC.
In the event that the operating agreement permits you to sell your minority interest, it is important to determine how much your interest is worth. In most cases, it would be beneficial to obtain a valuation of the interest by an independent business appraiser. The appraiser will perform an analysis of the company as well as an analysis of what your minority interest is worth. This is not as simple as multiplying your percentage of ownership by the fair market value of the company. In other words, if you own a 20% interest in a company that is worth $500,000, your interest is not necessarily worth $100,000. Because, as a minority member, you cannot control how the company is run, an appraiser will likely apply what is a called a “minority discount,” which could result in a discount of more than 35% of the value of the minority interest. Using the above example, if a 35% minority discount is applied to the 20% interest, your minority interest could be reduced to $65,000.
It is important to understand what rights you have to sell your minority membership interest in a New Jersey LLC. Spector & Ehrenworth, P.C. has extensive experience representing clients in the sale of their membership interest and working with business appraisers to accurately appraise the interest prior to sale. Attorneys at the firm would be happy to discuss with you the specifics of your limited liability company and advise you with respect to your desire to sell your interest. To schedule an appointment to speak with a business attorney, call (973) 845-6525 or e-mail email@example.com.
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