Companies don’t last forever, and neither do business partnerships. Sometimes after deciding to form an LLC, your circumstances change. Perhaps your business partnership is ending, and you need to figure out how to leave a partner LLC. Or maybe you have other disagreements or situations in a business where you need to know how to remove a member from an LLC or how to remove yourself from an LLC.
Leaving an LLC is sometimes necessary and it’s nothing to fear or feel bad about. Businesses change direction all the time, and sometimes partnerships don’t work out. Leaving an LLC can help you and your former business partners move on to better opportunities.
Let’s take a closer look at the process of how to remove a member from an LLC.
Why Might Someone Want to Leave an LLC?
There are several reasons why you might want to remove yourself from an LLC:
Wanting to start your own new business
No longer wanting to work with your business partners
Selling your share of a business, particularly if you originally invested with the intent to exit at some point
How to Remove Yourself from an LLC
Regardless of the reasons for removing yourself from an LLC, the good news is that it can be done. The first step you need to take is to read through the Articles of Organization that you put together when the LLC was officially registered. There should be verbiage in your agreement detailing the procedure for voluntary or involuntary withdrawal of a member.
When you remove yourself from an LLC, you will need to follow a series of steps:
Determine if the Articles of Organization specify a process that must be followed to remove yourself as a member.
Complete the steps listed in the Articles of Organization. Or in the absence of a written agreement between members of the LLC, research the requirements outlined by your state and complete those. Your LLC’s Articles of Organization supersede state statutes, so use the Articles of Organization as the first place to look, and make sure you are following the correct set of directives.
Provide written notification to the LLC of your intent to remove yourself.
Receive what interest in the company you are due. (The other members are required to buy you out in line with the Articles of Organization and your share of ownership in the business.)
Notify the relevant state regulatory authorities (usually the Secretary of State’s office) of your withdrawal from the LLC.
Once you have been removed from the LLC, it is business as usual for the remaining members; your responsibility to the LLC ends with your removal. After you have been bought out and received your interest in the LLC, you should consider your share of profits and losses in the LLC to be fully distributed. Taxation once you leave the LLC will depend on how your LLC is taxed. If you have been taxed as a partnership, you will receive a final tax form that notates that it is your last. If the LLC is taxed as a corporation, the member changes don’t have to be reported on the business tax return itself.
Does This Voluntary Withdrawal of a Member Terminate the LLC?
A member voluntarily withdrawing, or disassociating from, an LLC will not terminate the LLC. In the absence of an agreement between members, it’s possible that the state statutes could impact this, but as a general rule, one member withdrawing does not mean the end of the LLC. The LLC will remain in business once the withdrawing member has been fully removed.
However, if the LLC is a single-member LLC, then removing yourself would result in the dissolution of the LLC as there would be no remaining member-owners to continue on with the business. Articles of dissolution would need to be filed and the proper process followed to dissolve the LLC at that point.
How to Remove a Member from an LLC
Most often, the Articles of Organization will require a vote to remove a member from an LLC in the event that they don’t voluntarily choose to leave. Even then, the member being removed must still agree to the terms of their removal. If this is not covered in the Operating Agreement, and a vote is insufficient to decide upon removal, the next step would be for the other members to petition the court, but this moves into the territory of dissolving the LLC altogether via judicial dissolution.
The best road forward when someone is leaving an LLC is for all members of the company to try to stay on friendly terms and come to an amicable agreement in line with the Articles of Organization or relevant state laws. Keep the lines of communication open between all members and be honest about everyone’s goals and interests. Ending a business relationship doesn’t have to end in conflict. If you can be transparent and supportive with each other, you can reduce the likelihood of a court battle, hard feelings, or bad publicity that could damage the business’s reputation for the future.
If you want to leave an LLC or feel that the time has come for another member to leave the LLC, take the time to read through the Articles of Incorporation before you bring your plan to the table. Know your rights and responsibilities. Leaving an LLC the right way can help everyone move on to better opportunities and bigger career growth.
And if you're ready to do business by yourself and set up your own company, Incfile can help you create a new LLC for free. Learn more about our $0 + state fee LLC and how Incfile can help you every step of the way.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.