How to Omit a Member of an LLC

By Christine Funk, J.D.

How to Omit a Member of an LLC

By Christine Funk, J.D.

While some limited liability companies (LLCs) may fail altogether, in many circumstances, one or more parties to the business may come to a decision to either leave or to ask another owner, called a member, to leave. Just as couples divorce, people want to move on to new and different opportunities and, sometimes, they realize they can't work with some of the other members. When this happens, there are steps that must be followed so the LLC remains in compliance with its governing documents and the laws of the state where it formed.

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1. Review the LLC's registration.

LLCs are registered in the state where they form and operate. Typically, an LLC files a registration document with the Secretary of State or another state office that monitors business formation. This document is often referred to as articles of organization, though sometimes it is called articles of formation or a certificate of formation. Regardless of the title, the point of the articles is to file basic information about the business with the state. The document typically includes:

  • The name of the business
  • The business address
  • Contact information for the registered agent
  • The name of the person creating the LLC

In some states, more information is required. Specifically, certain states require the articles to identify all the company's members by name. Other states also require the identification of any managers working for the business. Determine whether your registration includes a list of the members of the LLC.

2. Review the LLC's operating agreement.

Most LLCs develop an operating agreement to govern their business. This document, similar in many ways to corporate bylaws, addresses important matters such as the rules for membership, the amount of each member's share of the business, and what contributions each made to the start of the LLC.

Most important, the operating agreement details the rights and responsibilities of the members, including their obligations in a situation where one wants to sell their share. When an LLC doesn't have an operating agreement or it fails to contemplate a departure in the manner that presents itself, state laws govern the omitting of a member.

3. Omit the member in accordance with the agreement or the law.

An operating agreement is binding on the parties. Thus, when an LLC removes a member, they must follow the procedures it describes. Typically, the operating agreement provides details about how the member's share will be transferred, the timeframe in which the transfer should take place, and other details pertaining to changes in business obligations, such as ongoing responsibilities. It should also address the procedure for removing a member who does not want to leave.

Again, if your LLC does not have an operating agreement or it does not account for these things, you must follow the business laws of your state.

4. Make the necessary revisions.

Once the member has been omitted, the operating agreement should be modified to reflect the changes, including to percentage shares. If the remaining members believe the process could have gone more smoothly, they may change the procedure for the future while updating the operating agreement. If the state required your LLC to list the members in the articles of organization, you likely need to file articles of amendment, or a similarly named document, with your state agency that regulates businesses to update this list.

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