If you’ve established an LLC business or partnership, you may find yourself in a position where a member wishes to leave. Alternatively, you may be in an involuntary withdrawal situation and unsure how to handle this complex scenario. Do you need to know how to remove members from LLCs? All the answers are in this article, so read until the end.
Why Are LLCs Operating Agreements Important When Removing Members from LLCs?
If you aim to remove a member from an LLC agreement, an LLC operating agreement is important; you must check the operating agreement to find out on which grounds you’re expelling a member.
The main reason LLC operating agreements are so critical is that if the member goes through involuntary removal and your operating agreement doesn’t outline a procedure, you will have to defer to the state’s law.
In Which Situation Might You Want to Remove A Member From An LLC?
There are a couple of situations where you may want to remove a member from an LLC. For example, conduct that severely affects the activities of your company and duty breaches are clear reasons you may wish to exclude a member. Read on to find out why you might want to remove a member from an LLC business or partnership.
Which Method Should You Use to Remove a Member From an LLC?
The main method to remove a member from an LLC is to submit notice (in writing) corresponding to the member’s withdrawal. In situations where involuntary removal is likely, you may put this process to a vote and then a buyout method.
If you’re using a buyout method, ensure that you use a buy-sell agreement or a related governing document.
Dissolving LLCs To Remove a Member
You’ve also got the option of dissolving an LLC through the court instead of asking the court to remove the member. It works this way because if you need to cease its legal existence, you must follow a legal process.
What Happens After An LLC Has Been Dissolved?
After the dissolution of the LLC, you can’t enter the operating agreement into a new contract. If you’ve decided to continue working alongside other LLC members, you may decide to establish a new LLC using different terms.
Two Types Of LLC Member Removal
There are two main types of LLC member removal: Voluntary LLC member removal and involuntary LLC member removal. Let’s look at these two main types of member removal now.
What Is The Voluntary Removal Of LLC Members?
Voluntary removal of LLC members is a process in which a member has chosen to walk away from the limited liability company. In this situation, the member in question must submit a written notice corresponding to their withdrawal request.
What Is The Involuntary Removal Of LLC Members?
The involuntary removal of LLC members is called “involuntary dissociation,” which can happen for various reasons. In this case, a member may not have chosen to be removed from the LLC, but may have breached their contract several times, damaged the company’s conduct, or created friction with other LLC members.
Which Is More Complex: Voluntary Or Involuntary Removal Of LLC Members?
Even in a voluntary removal situation, LLC members in many states must follow a legal process to have themselves removed from the documentation or paperwork. But involuntary removal of LLC members is a more complex process. The involuntary LLC removal process may follow the LLC documentation your company has prepared. If there is no description about removing a member, you must follow the state’s steps.
How Can You Complete The LLC Member Removal Process?
Whether your member has left voluntarily or involuntarily, you must complete the LLC member removal process by updating the company records and filing paperwork with the state. You will also have to notify many institutions, including:
- Financial bodies
- Your investors
- Insurance companies
Completing the LLC Member Removal Process: Critical Points to Remember
Remember, completing the LLC member removal process can be complex, especially if your LLC operating agreement doesn’t have the correct procedures. In this case, you may have to dissolve your operating agreement. Pay good attention to your documents before setting up LLC agreements; this method will help you avoid complications if you need to remove a member in the future.
Susan Noel is an experienced content writer. She is associated with many renowned business and law blogs as a guest author where she shares her valuable articles with the audience.