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TRANSFER AND ASSIGNMENT OF INTERESTS
6.1 Resignation of membership and return of capital
In a company, no member is allowed for volunteer resignation or is entitled for any capital return if the time span of one (1) year is elapsed after the filing of Articles of Organisations. But there is an exception to this rule if a member presents a written consent from all other voting members. After the completion of second year from the time of filing, a member is allowed to apply for volunteer resignation from his membership. But this time, such a member is entitled to receive book value of ownership interest, after all the adjustments for profits and losses till date of resignation, from the company. Again, there is an exception to this rule, if written consent by rest of the voting members is presented by the member who wants to resign. A member is allowed for volunteer resignation if more than two years have been elapsed from the date of filing. In this case, (s)he is entitled to receive the fair market value, after adjustment of profits and losses till date of resignation, of ownership interest. All the members, including the one about to resign, have to agree on the fair market value. If they fail to present an informal agreement, an appraiser is hired to do so, cost of which is deducted from the fair market value. An election is held by other voting members in order to purchase the resigning member’s interest, be it at book value or market value, in equal instalments for four (4) years. The first instalment is due sixty (60) days after the member resigned. Written notice for the same is provided within thirty (30) days after resignation of the member.
6.2 Death of a member
The heir of the deceased member is entitled to receive the estates or beneficiary or beneficiaries in exchange of ownership interest and fair market value, adjusted for profits and losses till date of death of member, from the company. All the other members should approve informally determined fair market value otherwise an appraiser is hired to do so. In the latter case, the cost of employment of appraiser is deducted from resultant fair market value, entitled to which are the estate and beneficiaries of deceased member. It’s possible that voting members may choose to buy deceased member’s ownership interest with four (4) instalments in an annum, with first instalment due sixty (60) days from the date of death of the member. In this case a written notice is provided to deceased member beneficiaries and estates. The deceased member’s estates or beneficiaries are not allowed to participate as a member or a manager in affairs of company or management. But they have rights of an assignee and are entitled, on behalf of deceased member, to get the profit shares and capital returns. But there is an exception to this rule if voting members approved it. It is also possible that voting members or the company purchases the life insurances of all the members, as a beneficiary if the purchaser decides, as a source of proceeds to purchase ownership interest of deceased member.
6.3 Restrictions of transfer
If a member wants to sell, pledge, hypothecate, transfer or assign all or part of her or his liable ownership interest in the company, he or she must first offer (“The Offer”) the portion or part of it, though ownership interest is subjected to the contemplate transfer (“Offered Interest”), first to the company and if the company is not willing then to the other voting members at the “Transfer Purchase Price” or simply purchase price and in the manner defined and presented in the offer. Exception to this rule is present and is availed if all the voting members approve an anonymous consent or as mentioned in (i) of this article.
If the member wants to present an offer to the company, he or she has to present a written notice to the company for the same. The written notice or the offer would be referred as “Offering Notice” hereinafter. When the offering notice is received by the company, the company has to present the “Company Notice” in writing to the offering member that whether or not the company is willing to purchase nothing less than all of the offered interest. The company has a time window of twenty (20) days which is also called as “Company Offering Period”. If the company is willing to purchase all and nothing less than all of the offering interest, the company must make it clear in the company notice, a closing date which is also called as the “Company Closing Date” that is within twenty five (25) days more for the expiration period of the company offer.
If the company does not want to purchase the offerings, the offering member is free to elect himself or the company to make an offering to the other voting members of the company. The offering is made in the form of “Remaining Member Notice” in written. The remaining member notice must be presented within the period, called as the “Member Offer Period” that terminates after 10 days from the expiration of the company offer period. After the receipt of remaining member notice, each of the voting members gets a time period or deadline of twenty five (25) days more to the expiration of member offer period to notify the offering member that whether or not he or she is interested in purchasing of all but nothing less than all of the ownership interest. The time period mentioned earlier is called as Member Acceptance Period. If there are two (2) or more than two (2) voting members that are willing to purchase the offered interest, then the two must come to an agreement or otherwise the interested voting members can make a purchase in proportion to the voting interest percentage that each of them posses. In the case if any of the voting members is willing to make a purchase of offered interest, he or she has a time span of sixty (60) days more to the expiration date of member acceptance period to notify, in written, the offering member about the willingness to purchase. This time period is called as Member Closing Date.
There is an option to file payment for purchase. The company or the interested voting member(s) can pay the entire aggregate dollar amount of Transfer Purchase Price in cash and the payment must be done on the Member Closing Date or the Company Closing Date, whichever is applicable. The other option available involves the payment of Transfer Purchase Price in four (4) equal annual instalments in which the first instalment is due on the Company Closing Date or Member Closing Date, whichever is applicable. In the latter case, the company or the interested voting member, whichever is applicable, must notify the offering member in written before the Company Closing Date or Member Closing Date, whatever the case.
In case, both the company and the voting member(s) are not interested in purchase of the offered interest or if the offer was accepted by the company or the interested voting member(s) but the payment is not made within time and in the manner that is specified in the notice or if the interested parties failed to make a purchase of all the offered interest, the offering member is not bounded and is free to transfer the offered interest to any of the Transferee for the period of sixty (60) days, starting from the date of such a failure, which is called as Free Transfer Period. But in this case, unless there is a written consent from all the voting members, the transferee is entitled only as an assignee and is not liable to participate as a member or a manger in the company’s affair or the management of the business. The transferee is only liable to receive the shares of profits and the capital returns which were otherwise entitled to the offering member. In case the transferee is willing to be a member of the company, he or she can be admitted as a member of company and become a substituted member of the company and is entitled with all the rights of a member. But to be admitted as a substituted member the transferee must satisfied the mentioned requirements which are - (i) the admitted member must be approved unanimously approved by all the voting members; (ii) the admitted member contributes to the company by delivering its shares; (iii) the admitted member agrees to the bounds, terms and conditions that are enforced on all the other voting members of the company.
In case that the offering member failed to transfer the offered interest to the transferee within the free transfer period, her or his rights of transferring such an offered interest without any charges or free of restrictions will come to an end and terminate.
6.4 Involuntary transfer of a membership interest
A member is said to constitute a material breach of the mentioned agreement if he or she is found with a creditor’s charging order, bankruptcy, liens on the membership interest, or any other type of involuntary transfer of membership interest. The transferee, creditor or claimant is bound only to the rights of an assignee and at no cost or in any circumstances is allowed to participate as a member in the company’s affair or the management of the business. The transferee or the claimant is entitled only to receive the losses and profits shares or the capital returns on the behalf of the member or to which the member was entitled. The voting members including the voting members that are found to constitute the material breach due to bankruptcy, liens on membership interest, creditor’s charging order or any other form of involuntary transfer of membership interest is allowed to purchase any or all of the membership interest, that was liable to any form of involuntary membership interest transfer, at the effecitve price that is equal to half of the actual book value of such interest after adjustments are made according to the profits and losses till the date of purchase. The member must notify the claimant, transferee or the creditor in written beforehand. The members agree that such type of valuation is a good attempt to fix the value of interest making sure that all the rights of a manager or member are not compromised and after the deductions due to such kind of material breaches are made accordingly and without being biased.