Ownership interest

What it means

An ownership interest expresses a member’s participation in a limited liability company. It carries the right to a share of profit, to vote at the general meeting and to a settlement share.

It is not the same as the company’s assets. A member owns a share of the company, not its machines and stock, which is why selling an interest is not a sale of the business.

The size of an interest follows the ratio of the member’s contribution to the share capital, unless the articles provide otherwise. A member can hold only one interest in a given s. r. o., so buying another one merges the two into a single larger interest.

How it works in practice

Transfer takes a written contract with certified signatures; it binds the company on delivery and third parties on the register entry. Transferring to an outsider needs consent under the articles.

A sale requires clean-standing certificates from the tax office, or the register refuses the transfer. So the certificates are obtained before the contract is signed and a date agreed.

When a member dies the interest passes to the heirs unless the articles exclude it. Until probate ends the company often does not know who votes, so we work with clients to set the rules for passing on an interest in the articles of association in advance, not when it first happens.

What to watch out for

The price of an interest is not the equity on the balance sheet. The buyer inherits the history too: unrecorded liabilities, live disputes and tax exposure from earlier years.

An individual’s income from selling an interest is taxed as other income, and the only deductible cost is the documented price at which the seller acquired it, or the contribution paid in. Without papers from the original acquisition, tax falls on almost the whole sale price.