Drafting a Membership Interest Purchase Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Drafting a membership interest purchase agreement is essential for protecting the rights and interests of both parties involved in a purchase or sale. Outlining the terms and conditions of the transaction, the legal document can also provide tax advantages, and should be tailored to each individual’s needs. For those unsure of how to draft such an agreement, Genie AI offers free templates for use.

It is vital that when composing a membership interest purchase agreement, all parties must be aware of their rights and obligations under the document. It must also adhere to applicable regulations and any industry standards in force. A qualified tax expert may be consulted to ensure that no potential tax liabilities are overlooked - as well as other legal ramifications - before signing off on an agreement.

Transferring a membership interest often has various consequences including financial ones; consulting with an experienced professional can help ensure that everyone involved has full knowledge of these potential implications before any deal is finalised. Equally important is seeking counsel if a dispute should arise after signing up - having valid documentation in place is key for protection against such eventualities in court proceedings or arbitration hearings alike.

Using Genie AI’s dataset, community template library and step-by-step guidance makes drafting your own membership interest purchase agreement achievable without needing any specialised legal expertise or having to fork out large lawyer fees - all you need do is familiarise yourself with some basics regarding contract law, such as what constitutes consensus between two parties disagreeing over contractual matters. With Genie AI’s resources at your disposal, it’s now simple to tailor contracts specific to your needs while taking into account relevant rules which vary by jurisdiction so you know your contract will stand up legally when needed most: at times of dispute resolution or enforcement of rights within the contract itself! So read on below for our step-by-step guidance and learn how you can access our template library today!

Definitions (feel free to skip)

Parties: People or entities involved in a legal agreement.
Scope of membership interest: The range of rights and benefits associated with a membership.
Purchase price: The amount of money being paid for a membership interest.
Payment terms: Details of how payment will be made, including the date, currency, method, and any late fees or interest rate.
Representations and warranties: Statements made by each party to the agreement that are used to establish the rights and responsibilities of each party.
Default: When a party to an agreement fails to meet their obligations as outlined in the agreement.
Remedies: Actions that can be taken to resolve a problem or enforce an agreement.
Recordkeeping requirements: Necessary information that must be kept and maintained in order to comply with the agreement.
Tax implications: The taxes that must be paid and the obligations of each party to the agreement.
Governing law: The laws that apply to the agreement and how conflicts between different legal systems are resolved.
Termination process: The steps required to end an agreement.

Contents

• Identifying the parties to the agreement
• Defining the scope of the membership interest
• Establishing the purchase price and payment terms
• Defining the currency of payment
• Describing the payment methods
• Outlining the due dates
• Setting the late fees and interest rate
• Outlining the representations and warranties of the parties
• Noting any exceptions to the warranties
• Identifying the period of time the warranties are valid
• Describing the responsibilities of the parties
• Specifying the duties of each party
• Explaining any conditions that must be met before duties can be completed
• Explaining the consequences of default
• Defining the default event
• Describing the resulting damages
• Discussing the remedies available upon default
• Outlining the steps for recovery
• Specifying any associated costs
• Establishing recordkeeping requirements
• Defining the type of records to be kept
• Setting the retention period for the records
• Addressing potential tax implications
• Defining the applicable taxes
• Explaining the obligations of each party
• Establishing the governing law
• Identifying the applicable legal jurisdiction
• Explaining the conflict of laws provisions
• Examining any additional documents needed to complete the agreement
• Locating and reviewing the documents
• Specifying any required modifications to the documents
• Explaining the termination process
• Describing the circumstances that may lead to termination
• Outlining the steps for terminating the agreement

Get started

Identifying the parties to the agreement

• Identify the parties to the agreement, including the company and the buyer of the membership interest.
• Determine the legal names, addresses, and contact information of the parties.
• Confirm that the buyer has the legal capacity to enter into the agreement.
• Determine any additional parties that may need to be notified of or included in the agreement.
• You will know you can check this step off your list when you have collected all the necessary details of the parties involved in the agreement.

Defining the scope of the membership interest

• Identify the specific membership interest that is being purchased, such as voting rights, access to member-only events, or other specific perks
• Define the scope of the membership interest, including the rights and privileges associated with it
• Include any restrictions or limitations on the membership interest, such as the duration of the agreement or any other conditions
• Describe the duties and obligations of the parties involved
• Outline any other relevant information related to the membership interest

Once all the details of the membership interest have been identified, outlined and agreed upon, you can move on to the next step of establishing the purchase price and payment terms.

Establishing the purchase price and payment terms

• Determine the purchase price for the membership interest: Consider the value of the company, the nature of the membership interest, the terms of the agreement, and any other relevant factors.
• Establish payment terms: Consider the purchase price and any other relevant factors, such as the availability of financing, the timing of payments, and the terms of any financing arrangements.
• Draft language for the purchase price and payment terms: Make sure to include language that specifies the price, the payment schedule, and any other payment terms that are applicable.
• Review and revise the language: Have both parties review and revise the language to ensure that it reflects their understanding of the purchase price and payment terms.

Once all the above steps have been completed, you can check this off your list and move on to the next step.

Defining the currency of payment

• Determine the currency of payment for the membership interest purchase agreement (e.g. U.S. Dollars, Canadian Dollars, etc.).
• Confirm with the purchaser and the seller that they agree to the currency of payment.
• Include the currency of payment in the agreement.
• You can check this off your list and move on to the next step once the currency of payment has been determined and included in the agreement.

Describing the payment methods

• Outline the payment methods available to the buyer, such as check, bank transfer, or other methods.
• Include the details on how payments should be made and when the funds will be received.
• Specify any fees or other costs associated with the payment.
• Once you have detailed the payment methods and their associated conditions, you can move onto outlining the due dates for payments.

Outlining the due dates

• Establish the due dates for each payment to be made under the Membership Interest Purchase Agreement.
• Include the date of the first payment, the date of the final payment, and any dates of interim payments if applicable.
• Specify whether the payments will be due in a lump sum or in installments.
• Include language in the agreement that states the consequences of defaulting on a payment.
• Once the due dates have been established and included in the agreement, you can check off this step and move on to setting the late fees and interest rate.

Setting the late fees and interest rate

• Determine the rate of late fees, which may be a flat fee or a percentage of the total interest payment
• Decide on an interest rate that will be applied to the payments, if necessary
• Include the rate of late fees and interest rate in the Membership Interest Purchase Agreement
• Check that both parties have agreed to the late fees and interest rate before finalizing the document
• When complete, move on to the next step of outlining the representations and warranties of the parties.

Outlining the representations and warranties of the parties

• Identify the representations and warranties that the seller is making to the buyer about the company and its operations.
• Understand the remedies that are available to the buyer if the seller fails to uphold any of their representations and warranties.
• Describe the representations and warranties in detail in the agreement.
• Identify any exceptions to the representations and warranties.
• Draft the language related to the representations and warranties.
• When you have completed outlining the representations and warranties, ensure that all language related to the representations and warranties is included and accurate.
• Once you have completed this step, you can move on to noting any exceptions to the warranties.

Noting any exceptions to the warranties

• Review the representations and warranties of the parties to identify any exceptions to those warranties
• Make a list of exceptions to the warranties and note any relevant information for each exception
• Note any exceptions that are specific to one party and not the other
• Make sure to include any relevant details regarding the exceptions, such as timelines and conditions
• When you have noted all exceptions to the warranties, you can move on to identifying the period of time the warranties are valid.

Identifying the period of time the warranties are valid

• Determine the duration of time that the warranties are valid for.
• Consider the period of time that the warranties are valid for in relation to the term of the agreement.
• Include an expiration date in the agreement, if necessary.
• When the duration of time that the warranties are valid for has been established, this step is complete and you can move on to the next step.

Describing the responsibilities of the parties

• Determine and assign roles for the parties involved in the agreement
• Clearly define the duties of each party and what each is expected to do
• Ensure that all expectations are clearly outlined in the agreement
• Identify the legal obligations of each party in relation to the agreement
• Outline any rights that are granted to the parties as part of the agreement
• Include payment terms and any other relevant details
• When all expectations, obligations and rights of the parties have been laid out, the step is complete and the next step can be tackled.

Specifying the duties of each party

• Identify the duties of each party involved in the agreement
• Clearly lay out expectations of each party
• Outline the obligations of each party
• Document which party is responsible for any costs associated with the agreement

You will know you are done with this step when the duties of each party have been identified, the expectations of each party have been clearly laid out, the obligations of each party have been outlined, and the party responsible for any costs associated with the agreement has been documented.

Explaining any conditions that must be met before duties can be completed

• Include any conditions that must be fulfilled before either party can perform their duties
• Explain the timeline for each condition and any remedies that may occur if the condition is not fulfilled
• Include any conditions that must be fulfilled before the other party can perform their duties
• Specify any conditions that must be met in order to close the deal
• Outline any other conditions that must be met before either party can perform their duties

You’ll know you can check this off your list and move on to the next step when you have included all the conditions that must be met before either party can perform their duties.

Explaining the consequences of default

• Outline the consequences for the buyer for defaulting on their duties, such as late payments, missed payments, etc.
• Ensure the consequences are reasonable and can be enforced legally.
• Describe the consequences for the seller for defaulting on their duties, such as failure to deliver the agreed upon goods or services.
• State the potential legal remedies that might be taken by either party in the event of a breach of the agreement.
• Include a clause detailing the buyer’s right to cure a breach of the agreement before any legal action is taken.
• When all of these considerations have been addressed, you can check this step off your list and move on to the next step.

Defining the default event

• Outline the event(s) that would constitute a default of the agreement
• Include any and all events that may occur that would result in the breaching of the agreement
• Identify the date for which the event is considered to have occurred
• Make sure all parties agree on the events that constitute a default
• Once all parties have agreed on the default event, you can check this off your list and move on to the next step.

Describing the resulting damages

• Describe the damages that will result if the default event occurs
• This should include the monetary damages, costs of enforcement and any other damages that may be incurred
• Make sure to include any potential damages that may arise from the breach of the agreement
• List out each potential damage to make sure all parties are aware of the consequences of a default event
• Once you have described the damages that may result from a default event, you can move on to discussing the remedies available upon default.

Discussing the remedies available upon default

• Establish the type of remedies which can be applied in the event of a default on the agreement
• Discuss possible remedies such as injunction, specific performance, or damages
• Outline the types of damages that can be claimed for breach of the agreement
• Consider how the damages will be assessed
• Establish whether the aggrieved party is entitled to any other remedies
• When all remedies are identified, you can check this off your list and move onto outlining the steps for recovery.

Outlining the steps for recovery

• Determine the parties involved in the membership interest purchase agreement, including the seller and the buyer
• Establish the timeline for the agreement, including the dates of purchase and possession
• Define the scope of the agreement, including the transfer of membership interest, assets, and liabilities associated with the agreement
• Agree upon the terms of the agreement, such as the purchase price, payment terms, and any other negotiated details
• Outline the steps for recovery that will occur if there is a breach of the agreement, such as the payment of damages or the return of the membership interest
• Sign the agreement and have all parties involved in the agreement acknowledge the document

Once all of these steps are completed, you can check off this step and move on to the next step, which is specifying any associated costs.

Specifying any associated costs

• Identify any costs associated with the agreement that either party must pay, such as filing fees, taxes, or other administrative costs
• Outline the payment timeline and who will pay for the cost
• Include a section that outlines any other costs that may arise during the course of the agreement
• Once all costs have been identified and documented, check this step off the list and move on to establishing recordkeeping requirements.

Establishing recordkeeping requirements

• Research and review state laws, as well as the LLC’s Articles of Organization, to determine any recordkeeping requirements.
• Consult with an attorney to ensure that any recordkeeping requirements are met.
• Develop a system for keeping records of the LLC’s activities, including the creation and maintenance of a written agreement that outlines the recordkeeping requirements.
• Create a schedule for when records will be reviewed and updated.
• When all requirements have been met, move on to the next step.

Defining the type of records to be kept

• Gather all documents and other relevant materials related to the agreement
• Identify the types of documents that will need to be kept for the agreement, such as contracts, invoices, financial statements, and other documents
• Create a list of the documents and their corresponding retention periods
• Decide whether the documents should be kept electronically, in hard copy, or both
• When the list of documents and their corresponding retention periods is completed, you can check this off your list and move on to the next step.

Setting the retention period for the records

• Set the retention periods for all records required to be kept under the agreement.
• Consider including a clause that requires the other party to keep the records for a certain amount of time in the event of a dispute.
• Specify the minimum period of time required for each record.
• Decide if there are any specific records that need to be maintained for a longer period of time.
• When you have set the retention period for all records required to be kept, you can check this off your list and move on to the next step.

Addressing potential tax implications

• Research the applicable local, state, and federal taxes and their implications on the agreement
• Identify and evaluate the potential tax consequences of the agreement
• Include provisions to account for the taxes due and when they must be paid
• When you have included provisions for all applicable taxes, you can check this off your list and move on to the next step.

Defining the applicable taxes

• Research the applicable taxes for the agreement and determine which taxes, if any, will apply
• Identify which party is responsible for paying the taxes
• Specify any relevant tax payment dates
• Include these details in the agreement
• Once you have completed this step, you can move on to the next step, which is explaining the obligations of each party.

Explaining the obligations of each party

• Determine what each party is responsible for, including any applicable duties and liabilities
• Write out the obligations of each party in the agreement, in clear and concise language
• Ensure the agreement states that each party is obligated to comply with applicable laws
• Make sure the agreement states that each party shall not take any action that would interfere with the performance of the other party’s obligations
• Describe any additional obligations that must be met by one or both parties
• Double-check that all obligations and liabilities of each party are clearly defined in the agreement
• When all obligations and liabilities are listed and agreed upon by both parties, the step is complete and you can move on to establishing the governing law.

Establishing the governing law

• Research and determine which jurisdiction’s laws will apply to this agreement
• Research and determine which laws are applicable to the agreement
• Include a governing law clause in the agreement that identifies which laws will apply
• Make sure the governing law clause is reasonable and enforceable
• Once the governing law clause is in the agreement, you can check this off your list and move on to the next step.

Identifying the applicable legal jurisdiction

• Identify the jurisdiction in which the corporation is organized
• Research the applicable corporate laws in the state of organization
• Determine if the laws of any other jurisdiction apply to the agreement
• Research the applicable securities laws in the state of organization
• Make sure that the agreement complies with all applicable laws
• Record the applicable laws in the agreement

Once you have identified the applicable legal jurisdiction, you can move on to the next step, explaining the conflict of laws provisions.

Explaining the conflict of laws provisions

• Identify the governing law of the agreement, which will be based on the jurisdiction of the parties involved
• Explain which jurisdiction’s laws will apply to the agreement, as well as any other applicable jurisdictions
• Outline any specific rules or laws that will apply from these jurisdictions
• Include any disputes that may arise from the agreement, and how those disputes will be resolved
• Be sure to check for any applicable state laws, as well as any applicable international laws
• When the conflict of laws provision has been completed, you will be able to move on to examining any additional documents needed to complete the agreement.

Examining any additional documents needed to complete the agreement

• Research the applicable state laws and regulations to determine what additional documents might be required for the agreement
• Make a list of any documents that may be necessary to complete the agreement
• Contact any relevant parties to obtain the necessary documents
• Verify that you have all the documents and that they are accurate
• Successfully complete this step once all the necessary documents are obtained and verified.

Locating and reviewing the documents

• Review the corporate documents and the existing Membership Interest Purchase Agreement (MIPA) for the company.
• Analyze the articles of incorporation, bylaws, and other governing documents to ensure that the MIPA complies with the company’s organizational requirements.
• Make sure that the MIPA is properly formatted, is updated with the most recent information, and contains all relevant provisions.
• Confirm that the MIPA accurately reflects the terms and conditions of the sale and can be used to complete the transaction.
• Check that the MIPA is complete and accurate, and that all required signatures are present.

Once you have located and reviewed the documents, you can move on to the next step of specifying any required modifications to the documents.

Specifying any required modifications to the documents

• Identify any modifications that need to be made to the documents to fit the intended purpose
• Make the necessary changes to the documents using a redlining process
• Double check the document to ensure all modifications have been made correctly
• Obtain the signature of all parties involved to signify agreement with the modifications
• Once all signatures have been obtained, the document is ready to be used

Explaining the termination process

• Outline the conditions that are required for the termination of the agreement, such as when a party breaches the terms of the agreement, or when a party fails to pay the required fees
• Create a timeline for when the termination will take effect and the process that must be followed
• Include any other relevant details or provisions that will apply upon the termination of the agreement
• Include a mechanism for resolving any disputes that may arise between the parties
• Check that the termination process is outlined clearly and is easy to understand
• When you have outlined the termination process and checked that it is clear and comprehensive, you can check this step off your list and move onto the next step of describing the circumstances that may lead to termination.

Describing the circumstances that may lead to termination

• Identify and describe any circumstances in which the Member’s Interest may be terminated, such as breach of the agreement, voluntary termination, death of the Member, or any other situation in which the Member’s Interest may no longer be valid.
• Include any conditions that must be met before termination can occur, such as giving advance notice or obtaining approval from other Members.
• Outline any disputes between the Members that could cause termination of the Member’s Interest and how they should be resolved.
• When you have written the termination circumstances, you can check this step off your list and move on to the next step.

Outlining the steps for terminating the agreement

• Review the agreement and ensure all steps for termination are clearly outlined and stated.
• Ensure that all parties understand the steps required for termination and any potential consequences of terminating the agreement.
• Include a timeline for the termination of the agreement.
• Establish a procedure for resolving disputes related to the agreement.
• Specify the way in which the agreement can be terminated.
• Include any fees or other compensation that may be required upon termination.

When you can check this off your list: When all the steps related to outlining the steps for terminating the agreement have been completed and the agreement is signed by all parties.

FAQ:

Q: What is the difference between a membership interest purchase agreement and a share purchase agreement?

Asked by Katie on January 11th, 2022.
A: A membership interest purchase agreement (MIPA) is an agreement between a buyer and seller to transfer ownership of all membership interests in a business entity, such as an LLC. This is different from a share purchase agreement (SPA), which is an agreement between a buyer and seller to transfer ownership of shares in a corporation. The main difference between these two agreements is the structure of the entity involved: an LLC is organized as a non-stock entity, while a corporation is organized as a stock entity.

Example dispute

Suing a Company for Breach of a Membership Interest Purchase Agreement

• The plaintiff could allege that the company failed to fulfill its obligations stated within the membership interest purchase agreement.
• Depending on the terms and conditions of the agreement, the plaintiff may be able to argue that the company’s breach of the agreement constitutes a breach of contract and seek damages for losses incurred as a result.
• The plaintiff must be able to demonstrate that the company’s breach of the agreement caused them to suffer some type of monetary loss.
• The damages may include the cost of the membership interest, as well as any other costs associated with the breach, such as interest payments or legal fees.
• The plaintiff must also be able to demonstrate that the company was aware of its obligations under the membership interest purchase agreement and that they had the capacity to fulfill them.
• If the plaintiff can demonstrate that the company breached the agreement, they may be able to seek damages for the breach. The amount of damages may be determined by a court, or the parties may agree to settle the claim out of court.

Templates available (free to use)

Assignment Assumption Of Membership Interests
Assignment Of Membership Interest M A Transaction
Membership Interest Contribution Agreement
Membership Interest Purchase Agreement
Membership Interest Purchase Contract Buyer Friendly Long Form
Membership Interest Purchase Contract Buyer Friendly Long Form Disregarded Entity
Membership Interest Purchase Contract Buyer Friendly Simple Majority Interest Texas
Membership Interest Purchase Contract Buyer Friendly Simple Minority Interest
Membership Interest Purchase Contract Buyer Friendly Simple Minority Interest California
Membership Interest Purchase Contract Buyer Friendly Simple Minority Interest New York
Membership Interest Purchase Contract Buyer Friendly Simple Minority Interest Texas
Membership Interest Purchase Contract Buyer Friendly Simple Texas
Membership Interest Purchase Contract Sale Of 100 Interest In Commercial Property Owner Purchaser Friendly
Membership Interest Purchase Contract Sale Of 100 Interest In Commercial Property Owner Seller Friendly
Membership Interest Purchase Contract Sale Of Non Managing Member Interest In Property Joint Venture
Membership Interest Purchase Contract Sale Of Non Managing Minority Interest In Property Joint Venture Seller Friendly Simple
Membership Interest Purchase Contract Seller Friendly Long Form
Membership Interest Purchase Contract Seller Friendly Simple Minority Interest
Membership Interest Redemption Agreement
Membership Interest Redemption Contract Simple
Membership Interest Subscription Contract Buyout Form

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