What is a Membership Interest Purchase Agreement or MIPA?

What is a Membership Interest Purchase Agreement or MIPA?

What is a Membership Interest Purchase Agreement or MIPA?  How is an ownership interest in, or ownership of an entire Limited Liability Corporation or LLC passed from a seller to a buyer in California? What do you need to know if you intend to sell or purchase your membership interest in a Limited Liability Corporation?

The owners of an LLC are referred to as “members.”  If one wishes to purchase an interest in an LLC, or the entire LLC itself, there is a specific type of contract known as a Membership Interest Purchase Agreement that structures the transaction governing the sale of a membership interest or ownership of a Limited Liability Company.

In larger corporate entities such as a C Corporation, S Corporation, Management Services Organization (MSO) or California Professional Corporation, ownership is held in “shares of stock” in the company by its shareholders.  A stock purchase agreement is used to acquire the interest of an individual shareholder, or the entire corporation itself.

A Membership Interest Purchase Agreement or MIPA, therefore, is the type of contract that establishes the specific terms through which the buyer will acquire the membership interest in an LLC, as well as the obligations of the buyer and seller (existing LLC member).  The MIPA is the document that governs the transaction that passes a member’s interest (ownership in an LLC) from one individual or entity (the seller) to another (the buyer).

Why do You Need an Experienced Mergers and Acquisitions Attorney to Complete a MIPA Transaction?

Why do you need an experienced mergers and acquisitions attorney to complete a Membership Interest Purchase Agreement or MIPA transaction?  How can the Watkins Firm protect your interests while ensuring your MIPA transaction is successfully structured and executed?

The acquisition of a membership interest in an LLC, or the entire LLC itself is actually quite legally and financially complex.  Any corporate entity, such as Limited Liability Corporation, exists to separate and protect the assets and interests of its owners (individual members or shareholders) from the debts and obligations of the corporate entity itself.

The Supreme Court of the United States actually considers a corporate entity like a separate, unique, individual person – completely separate or “distinct” from those who own the corporate entity or manage it.  This important protection is known as the “corporate veil” or “corporate separateness.”  In essence, the corporate veil absolutely separates the assets and interests of the owners from the property, obligations, debts, liabilities, accounts and other assets and debts of that entity. 

Business is all about risk and reward.  In order to take the necessary risks, the owners of the corporate entity are able to legally separate their own personal assets and debts from any accounts, obligations, or creditors of the corporate entity.  If a creditor wishes to pursue the owners of a corporate entity (individual members or shareholders) personally for the debts or obligations of the entity itself, they must “pierce the corporate veil” and clearly demonstrate there is no “actual legal difference between the corporate entity and the individual entities that own it.”  The act of piercing the corporate veil exposes all personal assets and interests of the member or shareholder in order to satisfy the debts and obligations of the corporate entity.  This is why a corporate entity such as an LLC exists, to provide the legal and financial separations between the corporate entity and its owners.

This is also why you need an experienced Mergers and Acquisitions (M & A) attorney to Complete a MIPA transaction.  The seller wants to make sure they are able to transfer their membership in the corporate entity for some consideration, and then move on (without any future obligation) from that transaction.  The buyer needs to make sure they are fully aware of every aspect of the membership interest they are acquiring, and that of the LLC itself, and to ensure the Membership Interest Purchase Agreement or MIPA is structured to manage every detail necessary to legally and financially transact ownership of that membership interest from the seller to the buyer.

The Watkins Firm has more than 40 years of experience in corporate transactions such as a MIPA transaction, or any business merger, asset purchase, stock purchase or mergers and acquisitions transaction.  If you are buying or selling a corporate entity or any interest therein within or formed under the laws and commercial code of the State of California you need an experienced, proven California M & A attorney to provide advice, structure the transaction and protect your interests.

California has unique laws and our own Commercial and Business Code.  Our California Commercial Code (often referred to as our State’s Uniform Commercial Code or UCC) governs almost all facets of any commercial transaction, including a MIPA transaction, within our state.  This unique business and commercial code (laws) and the extensive nature of California’s regulatory requirements increase not only the complexities but the risk associated with any California business transaction such as a MIPA.

You want to make sure the transaction is thoroughly, accurately, legally and financially structured to transfer the membership (ownership interest) in the LLC from the seller to the buyer.  Watkins Firm clients appreciate the extensive level of advice, legal experience and skill our M & A attorneys bring to any MIPA transaction.  They value the access and partnership our attorneys offer at every step in the process, as well as our “can-do, make it happen” attitude.  We aren’t here to tell you why you can’t or shouldn’t conduct business.  We are here to provide the advice, counsel and legal services to make sure you can and prudently should!

We invite you to a conversation.  If you are considering a transaction involving a Membership Interest Purchase Agreement or MIPA as either the seller or the buyer, you need an experienced, proven California mergers and acquisitions attorney in your corner.  The Watkins Firm puts 40+ years of experience serving the business, science and tech, real estate and medical / healthcare communities here in San Diego and across California on your side of the equation.  We protect your interests, structure the MIPA transaction and guide you through the process to ensure the successful accomplishment of your business, professional and personal goals.