6 Del. C. § 18-702 explained: § 18-702 Assignment for Delaware LLC founders (2026)

What 6 Del. C. § 18-702 says

Section 18-702 sets the default: a member can assign their LLC interest, but the assignee receives only economic rights (right to distributions) unless other members admit the assignee as a full member.

Operating Agreement can modify this.

Why this section matters

Protects multi-member LLCs from unwanted new co-owners. Voting transfer requires consent.

What this means for non-resident Delaware LLC founders

Solo founders rarely deal with assignment issues. Multi-member structures need explicit transfer-restriction provisions.

Common pitfalls

• Economic-only assignment can split ownership and voting in unintended ways.
• Operating Agreement should specify whether assignees can be admitted as members.

How 6 Del. C. § 18-702 interacts with the Operating Agreement

The Delaware LLC Act is largely a set of default rules that apply when the Operating Agreement is silent. Section 18-1101 directs courts to give "maximum effect to the principle of freedom of contract," meaning members can contract around most defaults via their Operating Agreement. The implied covenant of good faith and fair dealing always applies and cannot be eliminated by contract.

Practical implication: 6 Del. C. § 18-702's default rule applies only if your Operating Agreement does not address the same topic. A well-drafted Operating Agreement supersedes most Delaware Act default rules. For solo single-member LLCs, this matters less; for multi-member LLCs and complex structures, it matters significantly.

Primary source

The text of 6 Del. C. § 18-702 can be read at the official Delaware Code website: delcode.delaware.gov/title6/c018/. The Delaware Division of Corporations publishes guidance and forms at corp.delaware.gov.

Related Delaware LLC Act sections

Related sections in the transfers category and adjacent topics include the formation sections (§ 18-201 to § 18-213), member rights (§ 18-301 to § 18-306), management (§ 18-401 to § 18-402), distributions (§ 18-501 to § 18-507), and dissolution (§ 18-801 to § 18-803). For a full mapping, see the Delaware LLC Act glossary entry.

See all Delaware LLC statutes →

What does Section 18-702 actually do?

Section 18-702 of the Delaware Limited Liability Company Act sets the default rule for what happens when a member of an LLC transfers, or "assigns," their membership interest to someone else. The statute draws a line that surprises many people who are used to thinking about company stock. Under this default, an LLC interest is freely assignable, but the person who receives it does not automatically step into the original member's shoes. Instead, the assignee receives only the economic component of the interest, meaning the right to receive distributions and allocations of profit and loss that the assigning member would have received. The assignee does not gain the right to vote, to participate in management, to inspect company records on the same footing, or to otherwise act as a member of the company.

This split between economic rights and governance rights is the heart of the section. The drafters of the Act treated an LLC interest as something that can be cut into two parts: the money side and the control side. A member can hand over the money side to anyone without anyone else's permission, but the control side stays put unless the other members agree to admit the new person as a full member. For a Delaware LLC formed for around the $110 Certificate of Formation fee, this rule is baked in from day one even if the founders never read it, because Section 18-702 supplies the answer whenever the Operating Agreement is silent. Understanding the default is the starting point for deciding whether you want to keep it or change it in your own governing documents.

Why does this matter to a non-resident single-member LLC owner?

If you are a non-US founder who owns 100% of a Delaware LLC by yourself, the assignment rule may feel abstract, because there are no other members to protect against. In a single-member company you hold both the economic rights and the governance rights, so an assignment of your entire interest typically carries everything with it as a practical matter, subject to whatever your Operating Agreement says about admitting a successor as a member. Even so, the section still shapes how you should think about your company. The moment you bring in a co-founder, an investor, or a partner, you move into a multi-member world where the economic-versus-governance distinction becomes very real, and the document you signed at formation will control how that transition works.

The section also matters because cross-border ownership often involves estate planning, business sales, and financing arrangements where an interest might be pledged or transferred. A foreign owner who wants to sell the business, add a family member, or use the interest as collateral needs to know that, by default, the buyer or recipient gets cash flow rights without control unless the proper admission steps are taken. This affects valuation and negotiation. It also interacts with US tax filings that a foreign-owned single-member LLC already faces, such as Form 5472 filed with a pro forma Form 1120 and the associated $25,000 penalty for non-filing, because a change in ownership can change who is responsible for those obligations going forward.

How does it interact with the Operating Agreement?

Section 18-702 is a default rule, not a mandatory one. The Delaware LLC Act is built around freedom of contract, and the Operating Agreement is the contract that members use to override the defaults. This means the economic-only outcome described in the statute applies only to the extent the Operating Agreement does not say otherwise. Members can write provisions that go in many directions, and a well-drafted agreement usually addresses several of them rather than leaving the question to the bare default.

Common ways an Operating Agreement modifies or supplements the default include the following.

• Restricting transfers entirely, so that no member may assign an interest without the written consent of the other members or the manager.
• Granting a right of first refusal, so the company or the remaining members can buy the interest before it goes to an outsider.
• Setting out the exact procedure and vote required for an assignee to be admitted as a full member with governance rights.
• Defining what happens to an assignee who is never admitted, including whether they hold a bare economic interest indefinitely.
• Addressing tag-along and drag-along rights so that minority and majority members are treated predictably in a sale.

How does it interact with the Certificate of Formation?

The Certificate of Formation is the short public document filed with the Delaware Division of Corporations to bring the LLC into existence, and it is the filing tied to the roughly $110 fee. It is deliberately minimal. It generally states the company name and the registered agent, and it does not list members, ownership percentages, or transfer rules. Because of this, Section 18-702 and the Operating Agreement carry almost all of the weight on assignment questions. The certificate does not need to be amended every time an interest is assigned, and it does not record who currently owns the company, which is one reason Delaware LLCs are valued for privacy.

This separation has a practical upshot for founders. An assignment of an interest is a private matter governed by the statute and the Operating Agreement, not a public filing event. The state of Delaware does not police whether an assignee has been properly admitted as a member, and the franchise obligation itself, the $300 flat annual tax due June 1, does not change based on ownership transfers. The free EIN obtained through the SS-4 process stays attached to the entity rather than to any individual member, although a foreign owner should confirm whether a change in ownership affects responsible-party information. The point is that the certificate sets up the entity, while Section 18-702 governs what moves when ownership shifts.

What is a practical scenario where this rule shows up?

Imagine a Delaware LLC with two members, each owning half. One member, who lives abroad, decides to assign their entire interest to a friend in exchange for a payment. Under Section 18-702, and absent a contrary Operating Agreement provision, that friend becomes an assignee entitled to the distributions and the share of profit and loss that the departing member would have received. The friend does not become a voting member. They cannot show up to meetings, cannot block decisions, and cannot demand a management role. The remaining member keeps full governance control of the company even though they now share the economics with a stranger they may never have met.

Now consider how that scenario resolves. If the remaining member and the friend get along, they may follow the Operating Agreement's admission procedure so the friend becomes a full member with voting rights. If they do not, the friend may sit as an economic-only holder for a long time, collecting distributions while having no say in how the business is run. This can lead to friction, because the assignee has money at stake but no control over decisions that affect that money. The same dynamic appears when an interest passes through inheritance, divorce, or a creditor process, where the recipient often ends up with economic rights only until the members decide whether to admit them.

What are the common misunderstandings about assignment?

The most frequent misunderstanding is treating an LLC interest like a share of corporate stock. With common stock, the buyer usually receives voting power along with economic value as a single bundle. Section 18-702 deliberately separates the two for LLCs, so a buyer of an interest does not automatically get a vote. People also assume that selling an interest means the buyer can run the company, when in fact the buyer may only be entitled to distributions until the other members admit them. Another misunderstanding is believing the default cannot be changed, when the opposite is true: members are free to rewrite the rule in the Operating Agreement, which is why reading and customizing that document matters.

A few other points are worth keeping straight, because they trip up founders who skim the topic.

• Assignment of the interest is generally permitted by default, but admission as a member is not automatic and usually requires consent.
• An assignee's economic rights and a member's governance rights can end up in different hands at the same time.
• A single-member owner should not assume the rule is irrelevant, because it governs the day they add a partner.
• The statute is a starting point, and the actual outcome depends heavily on what the members wrote down.

What happens if Section 18-702 is ignored?

Ignoring the section usually means a founder fails to plan for transfers in the Operating Agreement and then relies on the default by accident rather than by choice. The consequence is not a fine or a penalty from the state, because this is a private governance rule rather than a filing requirement. Instead, the consequence is that the statutory default controls outcomes the members may not have wanted. A member who assigns an interest expecting the buyer to gain control may find the buyer is locked out of management. A buyer who pays a high price expecting to run the company may discover they hold only economic rights. These mismatches often surface during a dispute or a sale, when it is expensive and stressful to fix.

The practical risk for a multi-member LLC is unwanted co-ownership and deadlock. Without transfer restrictions, a member can hand economic rights to anyone, which can introduce an outside party into the company's finances against the wishes of the others. Because the default does not give that party a vote, the company can end up with an economic owner who has no voice and remaining members who feel saddled with a stranger. Founders who address assignment in advance avoid this by deciding ahead of time whether transfers are allowed, who must consent, and how an assignee becomes a member. Treating the Operating Agreement as the place to settle these questions is the dependable way to keep the default from producing surprises.

How does the default compare to a customized rule?

Under the bare default of Section 18-702, transfers of economic rights are free and admission of new members is gated, which favors flexibility on the money side and protection on the control side. A customized rule in the Operating Agreement can tighten both. For example, members might forbid any assignment without unanimous consent, which protects the group from outside economic holders as well as from unwanted voting members. Other companies loosen the rule, allowing transfers to family entities or affiliates more freely. The right choice depends on the business, the relationships among the members, and the founders' plans for financing or succession.

Comparing the two side by side helps clarify the trade-offs.

• Default rule: interest is freely assignable, assignee gets economic rights only, and admission as a member requires consent.
• Tightened rule: no transfer at all without member or manager approval, closing off even economic-only assignments.
• Loosened rule: certain permitted transfers, such as to a trust or affiliate, may pass through without separate consent.
• Hybrid rule: transfers allowed but subject to a right of first refusal so insiders can buy before outsiders receive anything.

How should a founder document an assignment?

Even though an assignment is a private matter, careful documentation matters because the company's records are what later prove who owns what. A founder handling an assignment under Section 18-702 should look first at the Operating Agreement to confirm whether the transfer is permitted, what consent is needed, and what steps turn an assignee into a member. From there, a written assignment instrument and an updated internal ownership record keep the picture clear. This is general legal information rather than legal advice, and the details of any particular transfer often benefit from review by a qualified professional, especially where cross-border tax issues are involved.

For a foreign-owned LLC, documentation also ties back to compliance items that live alongside the company. A change in ownership can affect who signs and files the annual Form 5472 with a pro forma Form 1120, and getting that wrong carries the $25,000 penalty mentioned in the federal rules. Beneficial ownership reporting is a separate matter, and US-formed LLCs have been exempt from the FinCEN beneficial ownership information filing since the Interim Final Rule of March 26 2025, so a domestic transfer of an interest in a Delaware LLC does not by itself trigger a BOI filing for the entity. Keeping assignment paperwork, tax responsibilities, and the Operating Agreement aligned is how founders make Section 18-702 work for them rather than against them.

How does Section 18-702 connect to charging orders and creditors?

The economic-versus-governance split in Section 18-702 also explains why LLC interests behave the way they do when a member has personal creditors. A creditor who pursues a member generally cannot seize the company or force their way into management. Instead, the typical remedy reaches only the economic side of the interest, which mirrors the assignment logic: the outside party can capture distributions that would have gone to the member, but does not gain the right to vote or to run the business. This parallel is one reason the Delaware LLC structure is often described as offering meaningful separation between an individual's troubles and the company's governance.

For a non-resident owner, this connection is worth understanding even if it never comes up in practice. It reinforces that the membership interest is two things at once, and that control does not travel automatically with money. A founder who keeps governance tightly defined in the Operating Agreement, and who understands that the default already protects control from passing through a simple assignment, is in a stronger position to plan for both ordinary transfers and unexpected events. None of this removes the value of professional advice for a specific situation, but it shows why Section 18-702 is more than a technicality and why it deserves attention from anyone who owns or plans to own a Delaware LLC.