How to remove a member from an LLC?
How can you legally remove a partner, spouse or person from your LLC?
What is the procedure?
In this post, we will break down the notion so you know exactly how to remove a member from an LLC.
We will look at a voluntary withdrawal, forced withdrawals, court petitions, the procedure to follow with your state to update your LLC registration and more.
In this article, we will focus on the following points:
- Remove member from LLC
- Remove partner from LLC
- Remove name from an LLC
- Remove spouse from an LLC
Let’s dive right in!
Member removal steps
It can be quite easy to set up an LLC.
However, it is inevitable that at some point in time, a member of an LLC may need to be removed.
The process will need to be managed carefully to avoid unnecessary headaches!
If you need to remove a member of an LLC, how do you go about it?
Let’s look at the steps on how to remove a member from your multiple-member LLC.
LLC operating agreement
The first step is for you to consult your LLC operating agreement or your LLC’s articles of organization.
If you have a good operating agreement, the process to remove a member from your LLC will be outlined.
The law recognizes the removal procedure outlined in your LLC operating agreement.
Typically, most operating agreements provide for:
Member voluntary withdrawal
If a member voluntarily accepts to leave the LLC, he or she must submit a written notice of withdrawal.
The written notice of withdrawal or letter of resignation is the formal notice given by the partner indicating his or her acceptance to leave the LLC.
The exiting member is entitled to his or her proportionate share in the profits of the limited liability company.
No matter the actual procedure outlined in the LLC operating agreement, the exiting member will be entitled to compensation representing the value of his or her interest in the LLC.
If a member is not willing to voluntarily leave the LLC, in many cases the LLC partners and the member in question can negotiate the terms and conditions for withdrawal.
In this case, the LLC effectively buys out a partner.
If you have an LLC operating agreement, it may provide for a buyout mechanism where the LLC buys out the interest of the exiting partner.
When the LLC and the existing member reach an agreement regarding the buyout terms, it is customary to sign a buyout agreement where the parties outline the buyout price and other aspects of the transaction in a legally binding agreement.
If you don’t have an LLC operating agreement, you can still negotiate the terms of a buyout and when you reach an agreement on the terms, sign an LLC buyout agreement.
Member involuntary withdrawal
In some cases, a partner, spouse, family member or member of your LLC may not want to voluntarily leave the LLC and submit a written notice of withdrawal.
The remaining members can negotiate with the member in question in an attempt to agree on a mutually satisfactory removal of the member.
In such cases, the LLC may offer monetary compensation to the exiting member or offers to buy the member’s share in the limited liability company.
Should all negotiations fail, the last option available to the LLC is to file a court petition requesting for the judicial dissolution of the LLC.
This is referred to as the “involuntary removal” or “legal removal” or even “judicial withdrawal” of a member.
Dissolving the LLC is a drastic measure of course and should be considered carefully before implementing it.
Here is a quick overview of the procedures that you’ll need to follow to actually remove a member’s name from your LLC registration:
To remove a member from your LLC, the most effective and efficient way it can be done is by invoking the procedures outlined in your limited liability company’s operating agreement.
It is crucial to adopt an operating agreement for your LLC allowing you to clarify the members’ rights and obligations towards the LLC and vice-versa.
An operating agreement is not required in all states but it does not mean that you should not adopt one.
The operating agreement is a legally binding contract between the LLC and its members.
In the event of a dispute or any removal situations, whether voluntary or involuntary, the terms and conditions of the operating agreement will be enforceable.
A good operating agreement will provide for the following:
- Partner removal procedure
- Voluntary removal procedure
- Forced removal procedure
- Buyout mechanism
- Buyout terms and conditions
- Procedural delays
When you form an LLC, it’s important that you ensure you provide for such measures in your operating agreement to avoid ending up in court.
Should your LLC articles of organization be silent on the procedures to remove a partner, then you will be governed by your state laws.
That’s something that you should try to avoid!
When you form an LLC, in most states, your LLC formation will be governed by the Uniform Limited Liability Company Act (ULLCA) or a revised form of it.
However, the ULLCA does not provide from an involuntary removal of a member.
In other words, if a member does not withdraw from an LLC voluntarily, the only way to have that member removed is to request it from the court.
If you want to avoid having to go to court, the only way you can remove a member is by reaching an agreement with the person.
How to remove my name from an LLC?
When you form an LLC, the objective is to work and collaborate with your partners on a long-term basis.
However, it happens that one day, you wonder “how do I legally remove my name from an LLC” or “how do I take my name off of an LLC”?
If you are looking to remove yourself from your LLC, you’ll need to submit a written resignation or notice of withdrawal.
That’s when the LLC is required to compensate you for your interest in the LLC.
Unless your LLC operating agreement provides for a procedure on how you can remove your name and yourself from the LLC, in most states the law does not provide for a specific procedure to remove a member from your LLC.
How do I remove a managing member from my LLC?
To remove a managing member from an LLC, you’ll need to consider the following steps:
- Do you have an operating agreement providing for the procedures to remove a member from your LLC?
- If your operating agreement provides for the removal procedures, make sure you implement such procedures
- If your operating agreement does not provide for a removal procedure, you’ll need to find a way to negotiate a removal of the managing member as in most cases state laws do not provide for an involuntary removal statute
- If you cannot agree with the managing member on the removal, the last option is to file a petition in court and potentially dissolve the LLC
How to remove a partner from LLC?
To remove a partner from an LLC, the process will be much simpler and potentially less costly if you have adopted articles of organization for your LLC.
The legally remove a partner from an LLC, the legally binding procedures outlined in the articles of organization should be followed.
If you do not have articles of organization or in the event of a dispute, the next best strategy is to negotiate a friendly exit.
By reaching a friendly agreement, the LLC may avoid having to file a petition in court for the removal of a partner or to be dissolved.
How does a member withdraw from an LLC?
A member can withdraw from an LLC in the following ways:
- Submit a written notice of withdrawal or notice of resignation
- Agree on the compensation he or she is entitled to by withdrawing from the LLC
- Sign a buyout agreement
- Make sure the LLC updates its registration with the applicable state
How to remove a spouse from LLC?
Removing a spouse from an LLC will follow the same rules as removing any member of the LLC.
Although the scope of this article does not include family law and statutes, a spouse (just like any other partner) must be compensated in proportion to his or her interest in the LLC no matter whether the removal is voluntary or not.
In the worst-case scenario, if the spouses cannot reach an agreement, then the last option is to dissolve the LLC in court.
Can I force a member out of the LLC?
The only way you can force a member out of an LLC is if the LLC’s operating agreement allows for the procedure to do so.
In the absence of a forced removal procedure outlined in a binding operating agreement, the only way you can force a member out is to file an application in court and get a judgment.