🔑 NY LLCL § 603: What an LLC Assignee Gets—And What They Don’t

Navigating the intricacies of limited liability company (LLC) laws can be challenging, especially when it comes to the assignment of membership interests. New York Limited Liability Company Law (LLCL) § 603 provides a comprehensive framework for understanding how membership interests can be assigned and the implications of such assignments. Here’s a breakdown of the key points you need to know.

Full Text of LLCL § 603

§ 603. Assignment of membership interest

(a) Except as provided in the operating agreement,

(1) a membership interest is assignable in whole or in part;

(2) an assignment of a membership interest does not dissolve a limited liability company or entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member;

(3) the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled; and

(4) a member ceases to be a member and to have the power to exercise any rights or powers of a member upon assignment of all of his or her membership interest. Unless otherwise provided in the operating agreement, the pledge of, or the granting of a security interest, lien or other encumbrance in or against, any or all of the membership interest of a member shall not cause the member to cease to be a member or to cease to have the power to exercise any rights or powers of a member.

(b) The operating agreement may provide that a member’s interest may be evidenced by a certificate issued by the limited liability company and may also provide for the assignment or transfer of any of the interest represented by such a certificate. A member’s interest may be a certificated security or an uncertificated security within the meaning of section 8—102 of the uniform commercial code if the requirements of section 8—103(c) are met, and if the requirements are not met such interest shall, for purposes of the uniform commercial code, be deemed to be a general intangible asset. The existence of the restrictions on the sale or transfer of a membership interest, as contained in this chapter and, if applicable, in the operating agreement, shall be noted conspicuously on the face or back of every certificate representing a membership interest issued by a limited liability company. Any sale or transfer in violation of such restrictions shall be void.

(c) Unless otherwise provided in an operating agreement and except to the extent assumed by agreement, until the time, if any, that an assignee of a membership interest becomes a member, the assignee shall have no liability as a member solely as a result of the assignment.

Key Provisions of NY LLCL § 603

1. Assignability of Membership Interests