When you're in the start-up phase of your limited liability company (LLC), the future usually looks quite rosy. You look at your fellow LLC members and contemplate the pleasures of being in business with them for years to come. But, unfortunately, reality is not always so clear-cut, and it's not unusual to find an LLC entertaining the prospect of removing an LLC member.
Equally unfortunate, removal of a member of an LLC can often be quite difficult, particularly if neither your LLC's articles of organization nor the LLC operating agreement includes removing member from LLC provisions.
How to Remove a Member from an LLC
So circumstances have come to the point where you and other members of your multiple-member LLC realize another LLC member needs to be removed or it will be extremely challenging to continue your day-to-day operations. While the start-up process for an LLC is relatively easy, the process to remove a member from an LLC is often fraught with difficulties. The first step in such a situation is to look to the LLC's articles of organization or the operating agreement to see if there are provisions governing the involuntary removal of members.
Provisions to Remove Member from LLC
If such provisions exist in the articles of organization or the operating agreement, follow the procedure outlined in them for removing a member. If the member is willing to be removed from the LLC, removal may be as simple as the member submitting a letter of resignation, depending on the relevant provisions. However, if the member is not willing to voluntarily resign, the provisions might provide, for example, a voting procedure allowing the other members to vote for the removal of the recalcitrant member.
Whether the member agrees to resign or a vote is passed to force the member to withdraw, the member is still entitled to compensation for his or her interest in the LLC. Your operating agreement may contain buyout provisions that will assist you in this process, or there may be a separate buyout agreement governing such situations.
What if no provisions exist for the removal of a member in the LLC's articles of organization or operating agreement? State laws concerning the regulation of LLCs become the default provisions and procedures when your articles of organization and operating agreement are silent on an issue. Most state laws regulating LLCs are based on the revised Uniform Limited Liability Company Act, or ULLCA, which has to date been enacted in fourteen states. However, the ULLCA, unfortunately, does not provide for a voting procedure for the forcible withdrawal of LLC members.
With no default voting procedure to fall back on and an LLC member who remains unwilling to withdraw from the company, often the only solution, short of the members being able to sit down and negotiate a settlement of the issue, is to petition the court for judicial dissolution of the LLC. Generally speaking, if matters reach this particular stage it's often best to retain an attorney to help you with the process. If the petition is granted, the LLC will undergo winding up procedures to terminate the business. Once the LLC is wound-up, or possibly even before, cooperative LLC members may start-up a new company together if they so desire; however, it should be remembered that petitioning the court is never an effortless or cost-free process, and if a negotiated settlement can be reached, that is often the best solution for all concerned.
Removing a member from your LLC may be a difficult process, but LegalZoom can help. Our legal help plan puts you in touch with an independent attorney from our attorney network. Choose an attorney that’s been rated by business owners like you, schedule a consultation, and get the answers you need – all for an affordable price.