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Q-A Ownership Interest Block
What restrictions do we wish to place on the transferability of interest (assuming securities law restrictions are already in place)?






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[Ownership Interest Block] Rule #1:
= "A corporation or an LLC can accomplish your preferences with respect to transfer restrictions. A corporation nay be slightly more desirable in this regard since no special agreements are needed to allow a transferee of stock to succeed to voting and all other rights of ownership (subject of course to securities laws)."
IF
IsTrue: [Restrictions on the transferability of interest] Is "An owner can freely transfer his interests in the entity, including voting rights"


It is generally believed that an absolute restriction on the transfer of an interest (such as, no transfers allowed) would not be enforceable because it would be an impermissible restraint on alienation. Although a company might not be able to absolutely prohibit transfers, it can restrict and discourage transfers. With respect to the rights of transferees, corporations differ from other entities. The transferee of a corporation acquires the rights incident to stock ownership, such as voting rights. In the case of an LLC or partnership, the transferee only acquires the economic rights, meaning the rights to distributions and allocations, and not the "membership" rights such as management, voting, inspection and information, unless that transferee is admitted to the partnership or LLC as a member or partner.