How to Remove a Member From an LLC

By Salvatore Jackson

It may sometimes become necessary to remove an owner of an LLC, particularly if the management of the LLC has irretrievably broken down. However, the default provisions of the Uniform Limited Liability Company Act, or ULLCA, on which the LLC acts of all 50 states and the District of Columbia are based, does not allow LLC members to vote out other LLC members. Unless the LLC's articles of organization or the operating agreement allows members to vote out members, an LLC member may only be removed if he submits written notice of withdrawal to the LLC.

Step 1

Determine if there’s a procedure for involuntarily withdrawing members contained in the LLC’s articles of organization or operating agreement. An articles of organization are the documents filed with a state agency that permit the creation of an LLC. An operating agreement is a written contract that sets forth procedures to govern the LLC. Either document may contain provisions that provide for the involuntary withdrawal of an LLC member. A member who withdraws from an LLC, either voluntarily or involuntarily, is entitled to a distribution of LLC proceeds commensurate with her ownership stake in the LLC.

Step 2

Utilize the voting procedure contained in the articles of organization or operating agreement. If there is a procedure for forcing LLC members to withdraw from an LLC, follow this procedure. If there is no such procedure, the default provisions of the ULLCA do not provide a voting procedure for forcing members to withdraw.

Ready to start your LLC? Start an LLC Online Now

Step 3

Arrange to have the member submit written notice of resignation to the LLC. If the member is willing to withdraw from the LLC, her written notice of withdrawal still entitles the member to a share of profits and assets earned by the LLC prior to her withdrawal.

Step 4

Offer a buyout if the member is unwilling to withdraw and there is no procedure for removing a member. The provisions of the ULLCA allow a member to assign his interest in the LLC to another individual or business. In the case of a member unwilling to withdraw, it may be possible to provide payment to the member in exchange for the assignment of his interest.

Step 5

Petition for judicial dissolution of the LLC if a member is unwilling to withdraw and management of the LLC has become impossible. The ULLCA allows a member of the LLC to petition a court for judicial dissolution if it is not reasonably practical to carry on the business operations of the LLC. A breakdown and stalemate between LLC members can be an event sufficient to frustrate the business purposes of the LLC. If granted, the LLC will be wound up. Winding up requires the LLC to not enter into new contractual agreements and work to satisfy existing contractual agreements. After this has happened, the assets of the LLC are distributed among its members and the business is terminated. While this is happening, it may be possible for the other members to start a new LLC and conduct business operations.

Ready to start your LLC? Start an LLC Online Now
Can a Member of an LLC Be Fired?


Related articles

What Is a Pro Rata Share for an LLC?

LLC is the abbreviation for limited liability company, which is an unincorporated business structure created under and governed by state law. If formed correctly in accordance with state law, the LLC is a legally recognized entity that allows the owners, who are called members, to enjoy limited liability and tax treatment similar to that of a partnership. This means that members incorporate business revenue into their personal income taxes. This is called flow-through taxation because the revenues and deductions flow from the business entity to the individual members. Given membership structure and tax treatment, to determine how to allocate profits, deductions, expenses and losses, many LLCs provide for distribution based on a member’s pro-rata share.

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.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Do I Have to Dissolve My LLC if My Partner Is Insolvent?

Limited liability companies have certain advantages, such as allowing owners to enjoy liability protection similar to a ...

Assignment of Interest in an LLC

Unlike corporate shareholders who are usually one step removed from the action, LLC members often have a hand in the ...

How to Add a Member to an LLC

How new members are added to a limited liability company, or LLC, is determined by the LLC's operating agreement ...

Why Dissolve a Limited Liability Company

A limited liability company’s dissolution is the process of permanently winding up the affairs of the LLC. Once ...

Browse by category
Ready to Begin? GET STARTED