How to Omit a Member of an LLC

By Heather Frances J.D.

Since business relationships don’t always work out as planned, it may become necessary to terminate certain relationships. In a limited liability company, or LLC, the owners, known as members, may change periodically. When one of those members wants to leave the LLC, doesn’t live up to his responsibilities or passes away, the other members may remove him from membership by following the LLC’s operating agreement.

LLC Registration

An LLC is a business entity that must register with the state in which it operates. This registration process typically involves filing articles of organization, sometimes called articles of formation or a certificate of formation, with the Secretary of State or similar state office. Articles of organization typically include basic information about the business, such as its name, registered agent and the name and address of the person organizing the LLC. Some states require more information. For example, Oregon requires a list of the owners and, if applicable, managers. In contrast, New York does not require any of this information on its articles of organization form.

Operating Agreements

Because an LLC’s articles of organization tend to be very basic, most LLCs create an operating agreement, similar to corporate bylaws, to govern their business. Typically, states do not require that operating agreements be formally filed, and they are rarely required by state law. But operating agreements are essential for LLCs to operate effectively because they describe the rules for the LLC’s ownership and operation of the business, including information about each member’s share of the business, rights and responsibilities of the members, how the LLC will be managed and buy-sell provisions that determine what happens when a member wants to sell his share. If an LLC chooses not to create an operating agreement, the LLC’s operation is governed by state law.

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Omitting a Member

An LLC’s members should review their operating agreement before attempting to remove or omit a member because their operating agreement likely describes the procedure they must follow. For example, the operating agreement likely provides details about the transfer of that member’s share in the company, including time limits on the transfer. The operating agreement may also describe whether the member who leaves will have any other responsibilities in the company. If some of the LLC’s members want to remove another member involuntarily, the operating agreement may also address the procedure for removal when a member does not want to leave the company.

Changes After Removal

When a member leaves, the remaining members may need to adjust the operating agreement to address the change in value of the remaining members’ capital interests in the company. Also, the LLC might need to amend its articles of organization on file with the state. While most states do not require a listing of an LLC’s members in the articles, some states do. For example, Arizona requires an update to the state filings under certain circumstances when a member leaves or is added. Additionally, if omitting a member changes the management arrangements of the LLC, the LLC may need to file an amendment with the state, but this requirement also varies by state.

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Can I Change an LLC From Members to Managers?

References

Related articles

Can a Member of an LLC Be Fired?

Managing relationships between owners of a small business can be quite trying at times. In cases of severe disagreement or incompatibility within a limited liability company, firing one or more owners, referred to as members, may be an option. However, generally an LLC may only fire a member when the operating agreement allows it, and if the owner is compensated for his share of the business.

How to Amend an LLC Filing

As your limited liability company grows and changes over time, you may determine that you need to amend your filings. Amendment may also be required if you discover that you made a mistake on your original filing. Generally, you only need to file an amendment when making significant changes to the LLC and altering the articles of incorporation. Following the correct steps for amendment will ensure that the state is updated with accurate information about your company.

What Happens if an LLC Fails to Follow Formalities Such as Keeping Minutes of Meetings?

Running a limited liability company can be confusing at times, especially when you're trying to determine which business formalities are required by law and which you should follow for your business to operate effectively. An LLC is a hybrid business structure that gives the owners, known as members, significant leeway to manage the business informally as they see fit. However, throwing all formalities to the wind can have serious consequences for the business.

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