How Do I Get Out of an LLC Partnership?

By Brette Sember, J.D.

How Do I Get Out of an LLC Partnership?

By Brette Sember, J.D.

When you form your limited liability company (LLC), withdrawing from the partnership is likely not a primary concern. However, it's important to understand how to withdraw should you ever find yourself in a situation where you need to.

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There are many reasons why you might choose to withdraw from an LLC. You may wish to start your own separate business, you may be retiring or moving, you might have decided your partners are too hard to work with, or you may just want to cash out your investment so you can move on to other endeavors.

Benefits of an LLC

LLCs are a popular way to organize a partnership into a company because of the many associated benefits, such as pass-through taxation and the flexibility of operating like a partnership. You also gain liability protection for members, so that the LLC is liable instead of each member personally. Forming an LLC with your partnership gives it structure because you must comply with state filing regulations, which require an operating agreement. The operating agreement lays out all of the guidelines and restrictions for running the company, including the process for how members can withdraw, if that is ever necessary.

How to Withdraw

To withdraw from your LLC partnership, follow these steps:

  1. Determine whether your operating agreement outlines the process. If your operating agreement does not contain a procedure for withdrawal, you must follow the procedure laid out in your state laws. The procedure in your operating agreement always takes precedence over state procedures. Note that if your operating agreement places limits on your ability to withdraw, doing so could be a violation of the agreement, putting you in breach. If you are in breach, you may have to pay damages to the LLC for your withdrawal.
  2. Follow the steps required by your operating agreement or state statutes. The usual practice is to require the member who is withdrawing to give the LLC written notice of the withdrawal. The letter, stating you are withdrawing and requesting your share of assets and income, should be signed by you and sent to all the other members. In your letter, you can request a vote by the LLC, approving your withdrawal and payout.
  3. Receive your interest in the company. Once the vote has been taken approving the withdrawal, the next step is for the LLC to transfer your share of the assets and income to you. Your operating agreement should determine what you are entitled to. If it does not, you must look to state law, which usually states that you should receive assets and income in line with your ownership interest. An audit—or at least a careful accounting—may be necessary to come up with an accurate number of your payout. You will likely need to sign a release indicating receipt once the assets are transferred to you.
  4. Notify the state of your withdrawal. This is accomplished by updating the articles of organization or annual report with the updated member information and submitting the document to the appropriate state agency.

Withdrawing from an LLC is not complicated, but it is important to follow the necessary procedures.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.