Transfer of units: Overview, definition, and example
What is transfer of units?
The transfer of units refers to the process of transferring ownership or interest in a specific portion of a company or investment, typically in the form of units of stock, membership interests, or shares. In business or investment contexts, a "unit" can represent a specific portion of ownership in a company or fund. This could apply to ownership in a partnership, a limited liability company (LLC), or a mutual fund, where units represent a share of the business or assets.
The transfer of units may involve selling, gifting, or otherwise assigning ownership of these units to another party, and it usually requires agreement between the parties and, in some cases, regulatory approval or compliance with existing operating agreements or laws.
Why is transfer of units important?
The transfer of units is important because it allows for changes in ownership or investment in a business or entity. It is a key part of business operations, investment strategies, and estate planning. For businesses, the ability to transfer units can provide flexibility, such as raising capital, passing ownership to heirs, or selling part of the business.
For investors, transferring units can represent the ability to liquidate investments, diversify holdings, or transfer ownership to another party for strategic purposes.
Understanding transfer of units through an example
Imagine an LLC with three members, each holding 30 units of membership interest. One member decides to sell their 30 units to another investor. The transfer of units would involve the selling member agreeing to transfer their 30 units to the buyer, and both parties would complete the necessary paperwork, such as an assignment agreement, and update the LLC’s membership register. After the transfer is completed, the new investor would become a member of the LLC, with the same rights and obligations as the previous member.
In another example, a person who holds 100 shares in a mutual fund may decide to transfer those shares to a family member. The family member would then become the new shareholder, with the right to the returns and any benefits associated with those shares.
An example of a transfer of units clause
Here’s how a transfer of units clause might look in a contract:
“No member shall transfer their units of membership interest to a third party without the prior written consent of the other members, except in the case of a transfer to an immediate family member or by operation of law. Any transfer of units shall be recorded in the company’s membership register, and the transferee shall be bound by all the terms and conditions of this Agreement.”
Conclusion
The transfer of units allows for the exchange of ownership or investment interests in a company, partnership, or fund. It is an essential part of managing business ownership, investment portfolios, and estate planning. Understanding how the transfer of units works, and the conditions that may apply, is crucial for ensuring that ownership changes are handled correctly, legally, and in accordance with any agreements or regulations in place.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.