Whether you are retiring from a business venture, resolving a dispute with co-owners, or simply ready to move on to new opportunities, selling your membership interest in an Illinois limited liability company (LLC) is not as straightforward as selling stock in a corporation. For business owners in Chicago, Naperville, Oak Brook, and throughout the Chicagoland area, understanding the rules—and your operating agreement—is essential before you list your interest for sale.

What Exactly Are You Selling?

Under the Illinois Limited Liability Company Act (805 ILCS 180), an LLC membership interest has two distinct components:

Distributional Interest: This is your right to receive distributions of the LLC’s profits and assets. You can generally transfer this economic interest freely.

Management Rights: These include voting rights, access to company information, and the ability to participate in business decisions. These rights are far more restricted when it comes to transfers.

Here is the critical distinction: while you can typically assign your distributional interest to anyone, the buyer will not automatically become a full member with management rights. Under Illinois law, a transferee who does not become a member cannot exercise any membership rights, participate in management, or inspect the company’s books and records.

Check Your Operating Agreement First

Before approaching potential buyers, review your LLC’s operating agreement carefully. Whether your business is based in Joliet, Bolingbrook, or Orland Park, this document governs how membership interests can be transferred and typically contains:

• Transfer restrictions: Many operating agreements prohibit or limit transfers without consent from other members or managers
• Consent requirements: Under the default Illinois rules, transferring full membership rights requires the consent of all non-transferring members
• Permitted transferees: Some agreements allow transfers to family members, trusts, or affiliates without requiring consent

If your operating agreement is silent on transfers, Illinois default rules apply—meaning you will likely need unanimous consent from all other members to transfer anything beyond your bare economic interest.

Common Transfer Provisions You May Encounter

Well-drafted operating agreements often include one or more of these mechanisms:

Right of First Refusal

If you receive an offer from a third party, you must first offer your interest to the existing members on the same terms. They have a set period to match the offer before you can sell externally.

Right of First Offer

Before marketing your interest to outsiders, you must first offer it to other members. Only if they decline can you seek outside buyers.

Tag-Along Rights

If a majority member sells their interest to a third party, minority members can “tag along” and sell their interests on the same terms. This protects minority owners from being stuck with new, potentially unfavorable co-owners.

Drag-Along Rights

Conversely, if a majority member finds a buyer who wants 100% of the company, they can “drag along” minority members and force them to sell. This helps facilitate complete sales of the business.

The Consent Process

When member consent is required, follow your operating agreement’s procedures exactly. Typically this involves:

1. Providing written notice of the proposed transfer to all members
2. Disclosing the identity of the proposed buyer and the terms of sale
3. Allowing time for members to exercise any right of first refusal
4. Obtaining written consent (unanimous or majority, as required)
5. Having the buyer execute a joinder agreement to become bound by the operating agreement

Document everything. Disputes over whether proper consent was obtained can lead to costly litigation.

What If Consent Is Denied?

If other members refuse to consent to your proposed transfer, you have limited options:

• Negotiate: Sometimes members object to a specific buyer but would approve others
• Sell the distributional interest only: You can still transfer economic rights, though buyers typically pay less for interests without management rights
• Buy-sell provisions: If your operating agreement includes put rights or mandatory buyout triggers, these may provide an exit path
• Dissolution: In extreme cases, you may be able to seek judicial dissolution, though this is a drastic remedy

Tax and Securities Considerations

Selling LLC interests involves important tax implications. If the LLC is taxed as a partnership, certain transfers can trigger tax consequences for the entire company—not just the selling member. Have your tax advisor review any proposed sale.

Additionally, LLC interests are securities under federal and state law. Ensure any sale complies with applicable securities exemptions to avoid regulatory issues.

Practical Tips for Sellers

To maximize your chances of a successful sale:

• Review your operating agreement with an attorney before marketing your interest
• Understand what you can actually transfer (full membership vs. economic interest only)
• Communicate early with other members to gauge their receptiveness
• Consider internal buyers first—other members often make the smoothest transactions
• Get professional valuations to support your asking price
• Work with legal counsel to draft proper transfer documents

Serving Chicago and Surrounding Communities

Burhanuddin Law LLC assists business owners throughout Cook County, DuPage County, and Will County with LLC membership interest transfers and related business transactions. We regularly work with clients in Chicago, Naperville, Burr Ridge, Darien, Oak Brook, Bolingbrook, Romeoville, Joliet, Plainfield, Orland Park, Homer Glen, Lemont, Lockport, New Lenox, Mokena, Frankfort, and surrounding areas.

Moving Forward

Selling an LLC interest in Illinois requires careful navigation of your operating agreement, statutory requirements, and the interests of your co-members. Rushing the process or failing to follow proper procedures can leave you stuck in an unwanted business relationship—or worse, embroiled in litigation.

Visit burhanuddinlaw.com to schedule a consultation and discuss your options for selling your LLC interest.

All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Burhanuddin Law LLC does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement.