A transfer of interest is a transfer of ownership of any object, real property, or business entity from one party to another. Most often, though, this term refers to the transfer of one party’s ownership in a business, and it may refer to an interest in a partnership, a limited liability company (LLC), corporation, or other business entity. Generally the transfer will be executed through a transfer of interest agreement.
Though people rarely refer to it as such, every purchase that is made technically involves a contract, and through that contract a transfer of interest in property is made. The purchase of food from a supermarket is a contract that results in a transfer of the interest in the food from the supermarket to the purchaser. Likewise, the interest in clothes purchased at a store is transferred through a contract between the purchaser and the store.
These transfers can be made through an agreement to any terms, notwithstanding any special restrictions or legal stipulations on the type of interest to be transferred. The agreement just must clearly state the parties, the interest to be transferred, and the consideration being given for the transfer. Once the intent to make the transaction is manifested in the words or actions of the parties, the agreement is officially executed and the transfer is complete.
One in real property is often referred to as an “assessable transfer of interest.” This is in reference to the fact that because ownership in real property has tax ramifications, certain transfers require a revaluation of the property after the following tax year. Any conveyance of real property through deed, trust, or contract, as well as any lease with a duration of 20 years or more, fall under this category. The purpose for this is to ensure proper assessment of taxes on the transaction.
Similarly, there may be times in which the sale of a business entity will be deemed an assessable transfer of interest. This occurs when there is a sale of 50% or more of the business. This, however, is not generally the case in the event the transfer occurs through foreclosure or forfeiture, if the transfer is not subject to income tax, or if the transfer is among members of an affiliated group, among others. The tax ramifications of these transactions are so significant that governments generally require a reevaluation after the transaction's execution.
