Sell a Land Note Held in an LLC in Texas — Process and Tips

Many Texas land notes are held not by individuals but by limited liability companies — LLCs that were created for asset protection, tax planning, or business organization purposes. If you need to sell a land note held in an LLC in Texas, the process is similar to selling a personally held note but with additional documentation and authority verification requirements that reflect the LLC's legal structure. Understanding these requirements before you begin the selling process ensures a smooth transaction, prevents delays at closing, and demonstrates to the buyer that the sale is properly authorized and legally sound.

LLCs have become the preferred business entity for many Texas real estate investors, and for good reason. They provide liability protection for the owners (called members), offer flexible tax treatment, and create a professional structure for managing investment assets. When an LLC sells a piece of Texas land with owner financing, the resulting promissory note and deed of trust are assets of the LLC, not personal assets of the members. Selling that note requires the LLC — acting through its authorized representatives — to endorse the note and assign the deed of trust to the buyer. The legal framework for this transaction is governed by the LLC's operating agreement and the Texas Business Organizations Code, and following the proper procedures is essential for the sale to be valid and enforceable.

This guide will walk you through the complete process of selling an LLC-held Texas land note, from verifying authority to closing the transaction. Whether you are the sole member of a single-member LLC or one of several members in a multi-member LLC, this article provides the practical guidance you need to navigate the sale successfully.

Understanding LLC Ownership of a Texas Land Note

Why Notes Are Held in LLCs

Texas real estate investors hold notes in LLCs for several reasons. The primary reason is liability protection — if something goes wrong with the note or the underlying property (a lawsuit from the borrower, an environmental issue, a title dispute), the LLC provides a shield between the problem and the member's personal assets. Notes held in an LLC are assets of the entity, not personal assets of the members, which means personal creditors of the members generally cannot reach the notes directly. Tax flexibility is another reason — LLCs can be structured as pass-through entities for tax purposes, meaning the income from the note flows through to the members' personal tax returns without entity-level taxation. And organizational clarity is a third reason — an LLC provides a clear, professional structure for managing note investments, particularly when multiple notes or multiple investors are involved.

The LLC as the Note Holder

When a note is held in an LLC, the LLC is the legal owner — the payee named on the promissory note and the beneficiary named on the deed of trust should be the LLC, not the individual members. If the note was originally created in the LLC's name, this is straightforward. If the note was originally created in an individual's name and later transferred to an LLC, there should be a recorded assignment of the deed of trust to the LLC and an endorsement of the note to the LLC. These transfer documents establish the LLC's ownership and are essential for the buyer's due diligence when the note is sold. If the transfer documentation is incomplete — the assignment was never recorded, for example — this issue should be addressed before the sale process begins.

Authority to Sell: Who Can Act for the LLC

Manager-Managed vs Member-Managed LLCs

Texas LLCs are either manager-managed or member-managed, and this distinction determines who has the authority to bind the LLC in a note sale transaction. In a manager-managed LLC, the manager (or managers) have the authority to manage the LLC's business and make decisions about selling assets. The members, unless they are also managers, do not have the authority to act on behalf of the LLC. In a member-managed LLC, all members have the authority to manage the LLC's business and bind the LLC in transactions. The operating agreement may further define or limit these authorities — for example, requiring a majority vote of members to approve asset sales above a certain value.

Understanding your LLC's management structure is the first step in determining who needs to be involved in the note sale. Review the operating agreement to identify whether the LLC is manager-managed or member-managed, who the current managers or managing members are, whether selling a note requires any special approval (such as a member vote or unanimous consent), and whether there are any restrictions on the sale of LLC assets. If the operating agreement is silent on these points, the default rules under the Texas Business Organizations Code apply.

Operating Agreement Provisions

The operating agreement is the LLC's governing document, and it controls how the LLC's business is conducted. Most well-drafted operating agreements include provisions addressing the sale of LLC assets, and these provisions must be followed for the sale to be properly authorized. Common provisions include requirements for member approval before selling significant assets, restrictions on sales to related parties, requirements for obtaining fair market value, and procedures for documenting the authorization (such as a written consent or meeting minutes). Following the operating agreement's requirements is not optional — a sale that is not properly authorized under the operating agreement can be challenged by a member and potentially voided.

Documenting Authorization

For the buyer's protection (and yours), the authorization to sell the note should be documented in writing. For a single-member LLC, a simple written resolution by the sole member authorizing the sale is typically sufficient. For a multi-member LLC, meeting minutes or a written consent signed by the requisite number of members (as specified in the operating agreement) should be prepared. This authorization document should identify the note being sold, authorize the sale at a specified price or within a specified price range, designate the person authorized to sign the closing documents on behalf of the LLC, and confirm that the sale is consistent with the operating agreement's requirements. Having this document prepared and available at closing satisfies the buyer's due diligence requirements and protects all parties.

Documentation Required for the Sale

LLC Formation and Good Standing

The buyer will want to verify that the LLC is a valid, existing entity. This is confirmed through the LLC's certificate of formation (filed with the Texas Secretary of State when the LLC was created) and a certificate of good standing (which confirms the LLC has not been forfeited, dissolved, or otherwise terminated). A certificate of good standing can be obtained from the Texas Secretary of State's office, either online or by mail. If the LLC is not in good standing — perhaps because annual franchise tax reports were not filed — it should be brought current before the sale, as a forfeited LLC's ability to transact business is limited.

Operating Agreement

The buyer may request a copy of the operating agreement (or relevant excerpts) to verify the management structure, the authority of the signing party, and any approval requirements. Unlike trust documents, where a certificate or abstract is commonly used instead of the full document, operating agreements are often shared with buyers in their entirety or in relevant part. If the operating agreement contains sensitive provisions unrelated to the note sale, you can provide only the sections relevant to management authority, asset sales, and member approval requirements.

Standard Note-Selling Documents

The standard documents required for any note sale — the promissory note, deed of trust, payment history, property information, and any modifications — are needed regardless of the ownership structure. These documents should reflect the LLC as the note holder. If the note was transferred into the LLC from an individual, the assignment chain should be complete and recorded. If the assignment is missing, it should be prepared and recorded before or simultaneously with the note sale closing. For a full documentation checklist, our guide on documents needed to sell a land note in Texas provides comprehensive guidance.

The Sale Process for an LLC-Held Note

Step One: Verify Authority and Prepare Documentation

Review the operating agreement, confirm the management structure, identify the authorized signers, and prepare the authorization documentation (member consent or resolution). Obtain a certificate of good standing from the Secretary of State. Verify that the note and deed of trust are properly in the LLC's name and that the assignment chain is complete. This preparatory step may take a few days to a week, depending on the complexity of the LLC and the completeness of existing documentation.

Step Two: Get a Quote

Contact a reputable Texas note buyer and provide the note details along with information about the LLC ownership structure. Longhorn Note Buyers has extensive experience purchasing notes from LLCs and can evaluate your note within 24 hours. Let the buyer know upfront that the note is LLC-held so they can factor the documentation requirements into their closing timeline. The evaluation and pricing process is the same as for personally held notes — the LLC structure affects the documentation, not the note's inherent value.

Step Three: Obtain Member Approval If Required

If the operating agreement requires member approval for the sale, circulate the buyer's offer to the members and obtain the necessary approvals. Document the approval in writing — signed consents or formal meeting minutes — and make the documentation available for closing. If all members are aligned and prepared, this step can be completed quickly. If member alignment is an issue, address it before the buyer invests time and resources in due diligence.

Step Four: Close the Transaction

At closing, the authorized representative of the LLC endorses the note and executes the assignment of the deed of trust on behalf of the LLC. The endorsement should read: "[LLC Name], by [Authorized Person's Name], [Title — e.g., Manager or Managing Member]." The assignment should similarly identify the LLC as the assignor, with the authorized person signing in their representative capacity. The buyer wires the purchase price to the LLC's bank account, and the transaction is complete. The funds are then an asset of the LLC, to be managed and distributed according to the operating agreement.

Tips for a Smooth LLC Note Sale

Keep Your LLC in Good Standing

An LLC that is not in good standing with the Texas Secretary of State may have limited ability to conduct business, which can delay or prevent a note sale. File your annual franchise tax reports on time, maintain your registered agent, and keep your formation documents current. These are basic LLC maintenance tasks that protect your ability to transact when the need arises. If your LLC has fallen out of good standing, it can usually be reinstated by filing the overdue reports and paying any penalties, but this takes time — better to prevent the issue than to fix it under time pressure.

Maintain Complete Records

Having your LLC's records organized and accessible — including the operating agreement, formation documents, amendments, member lists, and authorization records — makes the note sale process faster and smoother. Note buyers appreciate working with sellers who have their documentation in order, and the professionalism it demonstrates can positively influence the transaction experience. If your records are incomplete, take the time to gather and organize them before approaching a buyer. A Texas business attorney can help you identify and address any gaps in your LLC's documentation.

Coordinate Among Members Early

If your LLC has multiple members, coordinate with them early in the process — ideally before you contact a note buyer. Discuss the decision to sell, the expected price range, and the timeline. Identify any concerns or objections and address them proactively. Getting all members on the same page before the buyer engagement begins prevents the frustrating situation of a deal collapsing because a member objects at the last minute. Unified member support for the sale is the foundation of a smooth, successful transaction. Our article on common mistakes when selling a land note in Texas highlights preparation as one of the keys to avoiding problems.

Ready to Sell Your Note?

If you hold a Texas land note in an LLC and are ready to sell, Longhorn Note Buyers can make the process straightforward and efficient. With over $46 million in Texas notes purchased since 2007, a 100 percent close rate on every deal quoted, and extensive experience with LLC-held notes, Longhorn provides the expertise that entity-owned note sales require. Founded by Nick McFadin — buying notes since 1983 — and partnered with Sandy McFadin since 2013, Longhorn Note Buyers is based in San Antonio and works exclusively in Texas. Call (210) 828-3573 or visit longhornnotebuyers.com today for a free, no-obligation quote within 24 hours. Whether your LLC is a simple single-member entity or a multi-member investment vehicle, Longhorn has the experience to handle the transaction smoothly and get you the cash your LLC deserves.

Frequently Asked Questions

Does holding a note in an LLC affect the price a buyer will pay?

The LLC ownership structure itself does not affect the note's price. The price is based on the note's financial characteristics — balance, rate, payment history, property value — not on who owns it. The LLC structure affects only the documentation and closing process, not the valuation. An experienced buyer evaluates the note on its merits and provides the same price whether the note is held by an individual, an LLC, a trust, or any other entity.

What if my LLC has been dissolved or forfeited?

If your LLC has been dissolved or administratively forfeited by the Texas Secretary of State, its ability to transact business is limited. Before selling the note, the LLC should be reinstated, which typically involves filing any overdue reports, paying penalties, and filing for reinstatement with the Secretary of State. The reinstatement process can take a few days to a few weeks depending on the circumstances. Once the LLC is reinstated and in good standing, the note sale can proceed normally. A Texas business attorney can assist with the reinstatement process if needed.

Can a single member of a multi-member LLC sell the note without the other members' consent?

This depends on the operating agreement. If the operating agreement designates one member as the manager with authority to sell assets, that member can proceed without the others' consent (subject to their fiduciary duties to the other members). If the operating agreement requires a member vote for asset sales, the requisite number of members must approve the sale. If the operating agreement is silent, the default rules under the Texas Business Organizations Code apply, which generally provide that in a member-managed LLC, the approval of a majority of members is needed for sales outside the ordinary course of business. Review your operating agreement carefully and consult with an attorney if the authority is unclear.

Do I need a lawyer to sell a note from an LLC?

While a lawyer is not strictly required, having one review the operating agreement, prepare the authorization documentation, and ensure the closing documents are properly executed is advisable, particularly for multi-member LLCs or LLCs with complex operating agreements. The legal cost is modest relative to the transaction value and provides protection against claims that the sale was not properly authorized. For single-member LLCs with straightforward operating agreements, the legal complexity is minimal and a lawyer's involvement may be limited to a brief review. An experienced note buyer like Longhorn Note Buyers can also guide you through the documentation requirements based on their extensive experience with LLC transactions.

How are the sale proceeds distributed to LLC members?

The sale proceeds are deposited into the LLC's bank account and become an asset of the LLC. Distribution to members is governed by the operating agreement, which typically specifies how profits and proceeds are allocated among members. In many LLCs, distributions follow the members' ownership percentages — a member with a 60 percent interest receives 60 percent of the distribution. The timing of distributions is also governed by the operating agreement — some agreements require immediate distribution of sale proceeds, while others give the manager discretion over the timing and amount. Tax implications of the distribution should be considered, as members of a pass-through LLC report their share of the gain on their personal tax returns regardless of when the cash is actually distributed.