The owners of a limited liability company (LLC) are called members. At some point, an LLC member may find that they want or need to withdraw from the LLC. That member, as well as the other owners of the LLC, may wonder how to accomplish this.
To properly withdraw from an LLC, there are a few key questions that the member and owners must ask.
- What does the company agreement say? The company agreement is typically the most important document to refer to when a member wants to leave an LLC. Well-drafted company agreements control the potential departure of a member and outline the steps required. Departing LLC members may find that there are more significant restrictions regarding exiting an LLC compared to other business entities. Although LLCs may be formed for complex organizations with complicated organizational schemes, many LLCs are designed for simple businesses co-owned by family and friends. As a result, company agreements crafted for these organizations restrict the entry and exit of LLC members.
- What happens if there is no company agreement? Sometimes, an LLC does not have an company agreement. In that case, Texas law controls and prohibits an LLC member from withdrawing from the company. Note, however, that other states’ laws may differ.
- Is the departure harmonious? Another question to explore is whether or not the departure of the LLC member will benefit the LLC. Members depart from LLCs for a variety of reasons, including but not limited to death, disability, or change in life circumstances. However, there are times when a member wants to leave due to significant breakdowns in the relationships of the owners. In those cases, the departure may prove to be more difficult than in other circumstances—further highlighting the importance of a well-drafted company agreement.
- How should this departure be documented? First, it should be documented in accordance with the company agreement. Second, the circumstances may dictate additional necessary documents. Additional necessary documents may include a separation agreement, a buyout agreement, and even tax filings.
We Can Help
The departure of an LLC member is often more complicated than anticipated. If you are considering leaving a multimember LLC or are aware that another member is contemplating an exit, you do not have to figure things out on your own. Our team of experienced business law attorneys can help you assess your options and navigate a member’s exit. Call our office today to set up a consultation.