How to Leave an LLC

By Jennifer Williams

Death, bankruptcy, voluntary withdrawal and assignment of interest are the primary ways to leave a limited liability company. Look to the articles of organization or the operating agreement for direction, as these documents usually set out all the ways a member may leave the LLC and prescribe a procedure for each. The various ways to leave an LLC are essentially the same across state jurisdictions and apply to members whether they are individuals or business entities.

Death, bankruptcy, voluntary withdrawal and assignment of interest are the primary ways to leave a limited liability company. Look to the articles of organization or the operating agreement for direction, as these documents usually set out all the ways a member may leave the LLC and prescribe a procedure for each. The various ways to leave an LLC are essentially the same across state jurisdictions and apply to members whether they are individuals or business entities.

Voluntary Withdrawl

Withdraw voluntarily from a limited liability company if the LLC's articles of organization provide for withdrawal of a member prior to dissolution. For LLCs operating in Florida, the withdrawal of a member must be accomplished according to the procedure stipulated in the articles. Upon withdrawal the exiting member is entitled to any distribution provided for by the articles, or if the articles are silent, Florida law calls for a cash distribution valued at the member's equity interest in the LLC.

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Bankrutpcy

File for bankruptcy, reorganization or the appointment of a trustee and forfeit membership in an LLC, unless the article of organization provide otherwise. Membership automatically terminates 120 days after petitioning for bankruptcy or 90 days after appointment of a trustee unless such action is dismissed or otherwise terminated.

Assignment of Interest

Assign all financial interest in an LLC membership and cease to be a member of the LLC. In an LLC operating in California, the operating a greement must provide for termination, and a majority of the remaining members must vote in the affirmative before termination is effective. The terminated member is entitled to receive the value of the member's equity interest in the LLC upon departure.

Death, Incompetency or Dissolution

A member who is an individual can leave an LLC through death or adjudication of incompetency. If the member is a business entity, it can leave through dissolution or termination. The membership interest is executed by the deceased or incompetent member's personal representative until the decedent's estate is settled, or by a corporate trustee until dissolution or termination is settled.

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Can I Change the Owners of an LLC?

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What Happens to My LLC If I Declare Personal Bankruptcy?

When someone declares bankruptcy, his financial assets may be claimed by a bankruptcy estate and used to settle his debts. An example of a financial asset that could be transferred to personal debtors is an ownership share in a limited liability company. LLCs are state-approved businesses with a relatively small number of owners, otherwise known as members. The other members of the LLC may not want to have a new owner in the business due to the other member’s bankruptcy. Therefore, the LLC may be structured in a way to address this possibility.

Reasons for Voluntary Dissolution of LLC

A limited liability company, or LLC, is legally formed once the initial articles of organization are filed by the organizing members with the state business department. The business continues to exist unless voluntarily dissolved by the actions of its members, or is involuntarily dissolved by judicial order or another event as dictated under state laws.

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The members of a profitable limited liability company are entitled to receive periodic distributions from the business’s earnings. Most jurisdictions provide the framework for the types of distributions that may not occur. However, LLC members are free to stipulate the terms and eligibility requirements for distributions that do not inherently violate state regulations.

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