Amendment to Virginia LLC Act Facilitates Transfer of LLC Interests

The LLC Law Monitor blog reports on an amendment to the Virginia Limited Liability Company Act (VLLCA), effective July 1, 2013.  The amendment, found in Senate Bill 779, amends Section 13.1-1039 of the VLLCA as follows:

A. Unless otherwise provided in the articles of organization or an operating agreement, a membership interest in a limited liability company is assignable in whole or in part. An assignment of an interest in a limited liability company does not of itself dissolve the limited liability company. An Except as provided in subsection A of § 13.1-1040, an assignment does not entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights of a member. Such Unless otherwise provided in the articles of organization or an operating agreement, such an assignment entitles the assignee to receive, to the extent assigned, only any share of profits and losses and distributions to which the assignor would be entitled. (Deletions italicized, additions in bold)

The amendment clarifies that an LLC’s operating agreement may provide that an assignee of a member’s interest will also be given the associated voting/management rights.  Thus, if provided for in the LLC operating agreement, the assignee may automatically be fully admitted as a member. This amendment overturns the Virginia Supreme Court's finding in Ott v. Monroe, 719 S.E.2d 309 (Va. 2011) which held (to the surprise of many) that then-current law precluded an assignee from obtaining such rights, even if authorized in the operating agreement.

Most other states, including Delaware, had long recognized that membership rights could be assigned in any manner set forth in the applicable operating agreement.