How do I Get Out of an LLC Partnership?

By Salvatore Jackson

A limited liability company, or LLC, is a form of business entity created by state LLC statutes. An LLC combines the flexibility and pass-through taxation of the traditional partnership with the limited liability protections of a corporation. An LLC's flexibility provides partners, called members, the ability to draft their own procedures for withdrawing from the LLC by executing an operating agreement. If an LLC does not have an operating agreement, state LLC statutes provide a default procedure for member withdrawal from an LLC.

A limited liability company, or LLC, is a form of business entity created by state LLC statutes. An LLC combines the flexibility and pass-through taxation of the traditional partnership with the limited liability protections of a corporation. An LLC's flexibility provides partners, called members, the ability to draft their own procedures for withdrawing from the LLC by executing an operating agreement. If an LLC does not have an operating agreement, state LLC statutes provide a default procedure for member withdrawal from an LLC.

Step 1

Determine if there is an LLC operating agreement provision pertaining to withdrawal. Under state LLC statutes, any provisions in an operating agreement supersede the default procedures of state LLC acts.

Ready to start your LLC? Start an LLC Online Now

Step 2

Follow the procedures of an operating agreement or the state LLC statute default provision if there is no operating agreement. Typically, operating agreements and state LLC statutes merely require a withdrawing member to submit written notice to the LLC. However, an operating agreement may limit the ability of a member to withdraw. If an LLC member withdraws in violation of the LLC operating agreement, that member is in “breach” of the operating agreement, and may be forced to pay damages resulting from the withdrawal from the LLC.

Step 3

Submit written notice of withdrawal to the LLC members. Write and sign a letter announcing that you are withdrawing from the LLC, and submit the letter to the LLC's members.

Step 4

Receive an appropriate share of LLC assets and income. If there is no provision in the operating agreement pertaining to member withdrawal, state LLC statutes typically grant a withdrawing member a share in the LLC's assets and income commensurate with the withdrawing member's ownership interest in the LLC. However, any damages owed by the withdrawing member from breaching the operating agreement are offset against the amount of assets and income paid to the withdrawing member.

Step 5

Submit notice of the membership withdrawal to a state agency, if required. Some states require an LLC to report its membership to either the state business licensing entity in the LLC's articles of organization or to the state tax agency in the LLC's annual report.

Ready to start your LLC? Start an LLC Online Now
How to Change an LLC Filing as an S Corp to a Sole Proprietor

References

Related articles

Why Form an LLC in Nevada?

A Nevada limited liability company (LLC) is a business organizational structure that blends the legal aspects of a corporation and partnership. The owners, known as members, of a Nevada LLC have personal asset protection from creditors of the company under state law, but other benefits exist, especially if the LLC primarily conducts business in the state.

How to Release a Member From an LLC

While a limited liability company might share some common characteristics with a corporation, the process of exiting from an LLC is much more difficult than leaving a corporation. Since LLCs are privately held businesses, establishing the value of the departing member’s share in the business can be quite difficult. Since the owners of an LLC are responsible for paying taxes on their share of the business’s income, there are tax reporting issues that arise from a buyout as well.

How to Add a Partner to a LLC Using Sweat Equity

The existing members of a LLC have great flexibility to establish the procedures for the admittance of new members. As long as the LLC operating agreement doesn´t prohibit it, new members can join the LLC on the basis of "sweat equity," rather than having to contribute cash or property to the business. This means that a new member promises to perform services in exchange for an ownership interest in the LLC.

LLCs, Corporations, Patents, Attorney Help

Related articles

How do I Report Income From an LLC?

A limited liability company, or LLC, is a “hybrid” type of business organization that combines the limited liability ...

How do I Remove LLC Board Members?

A limited liability company, or LLC, is a form of business organization that provides the benefits of pass-through ...

What Happens if You Breach an LLC Operating Agreement in California?

Unlike a corporation, which must have a board of directors, the members of an LLC are free to determine how an LLC will ...

How to Add Capital Contributions to an LLC

An LLC, or limited liability company, is a business vehicle structured as a hybrid between a partnership and a ...

Browse by category
Ready to Begin? GET STARTED