Removing a member from a Texas LLC starts with the company agreement and the reason for the proposed exit. A negotiated buyout, a permitted withdrawal, and a disputed expulsion involve different procedures. A disagreement does not automatically give the other owners the right to cancel someone’s interest.
Planning an agreed buyout or ownership change? Our contract drafting and review services can help with the company agreement and transaction documents. Request a consultation and tell us whether the owners agree on the exit, whether there is a company agreement, and your deadline. Our work focuses on transactional matters; disputed removal may require litigation counsel.
Can a Member Withdraw or Be Expelled From a Texas LLC?
The default rule in Texas Business Organizations Code Section 101.107 prohibits withdrawal or expulsion. But that rule must be read with Sections 101.052 and 101.054, which allow the company agreement to modify many statutory defaults. The answer therefore depends on the agreement and applicable law—not just a vote to remove someone. See the Texas LLC statute.
Also distinguish an owner’s membership from a management or employment role. Removing a manager or ending someone’s employment does not, by itself, transfer or eliminate that person’s ownership.
Start With the Company Agreement
Read the LLC operating agreement, amendments, and any buy-sell agreement together. Look for withdrawal or expulsion provisions, triggering events, notice requirements, cure periods, voting rules, valuation methods, and payment terms. Confirm which provisions actually apply before taking action.
Document the facts and approvals required by the agreement. Do not assume that a majority ownership percentage permits every decision, or that informal conversations satisfy the notice and consent requirements.
Consider a Negotiated Buyout or Agreed Exit
If the owners can reach agreement, a buyout may allow the business to continue while resolving the departing owner’s interest. Identify whether the buyer will be the company, another member, or a third party. Negotiate the price, payment timing, treatment of outstanding contributions or loans, and any releases before signing.
An assignment of economic rights is not automatically admission of the buyer as a member. The closing documents should address both ownership and the intended voting or management rights. For the related transaction steps, see how to transfer LLC ownership in Texas.
If the Member Does Not Agree to Leave
Have counsel evaluate whether an enforceable removal provision applies and what remedies the facts support. Preserve financial records, messages, and governing documents. Avoid treating a disputed expulsion as complete or redistributing the ownership interest before the legal basis is established.
Winding up the LLC is a separate decision with consequences for all owners, creditors, and the business. It is not automatically required simply because the agreement lacks an exit clause. A request for judicial winding up must satisfy the applicable statutory grounds; a conflict alone does not establish entitlement to that remedy. Review LLC dissolution with counsel before choosing that path.
Documents to Gather Before a Member Buyout or Removal
Bring the company agreement and amendments, certificate of formation, ownership ledger, buy-sell provisions, financial statements, tax returns, member loans, and relevant correspondence. Include employment or management agreements if the departing owner also works in the business.
Check third-party obligations too: bank loans, leases, personal guarantees, customer contracts, and licenses may require consent or separate updates. A buyout agreement between owners does not itself release a guarantee owed to a lender. Ask your accountant to review the proposed payment and tax treatment before closing.
How Do You Complete the Membership Change?
Use a written closing checklist: confirm required consents; sign the purchase, assignment, or separation documents; complete the agreed payment; address membership admission and management roles; and update the company agreement, ownership ledger, and authorized signers as appropriate. Keep the effective date and responsibilities clear.
The Texas Secretary of State’s ownership guidance explains that an ownership change itself does not require a filing with that office. Changes to management, registered agent, registered office, or other information may involve separate reporting or filings. Review the applicable Comptroller reporting requirements rather than treating an annual report as the document that transfers ownership.
At Massingill, we help Texas businesses form and grow. One of the biggest challenges for growing businesses is how to resolve conflicts.
We know the process for how to remove a member from an LLC in Texas can be quite technical and often fraught with emotion.
Let our business law attorneys help you with your Texas LLC change of ownership and answer any questions you have about the process.
We can also assist in filing updated documents with the Secretary of State and getting your business on track for continued success. Contact our office online or by phone today to schedule an initial consultation.
Frequently Asked Questions: Removing a Member from an LLC in Texas
What are the common reasons for wanting to remove a member from an LLC?
Members may seek to remove an LLC member due to various reasons, including persistent conflicts, financial misconduct, lack of participation, or a fundamental shift in business vision. Such disputes can disrupt the harmony of the business and necessitate a formal removal process to protect the interests of the remaining members.
What happens to the departing member’s ownership interest after removal?
Upon removal, the departing member’s ownership interest typically needs to be addressed according to the LLC’s operating agreement or relevant agreements, such as a buyout agreement. This may involve compensating the members for their share or redistributing the interest among the remaining members, ensuring that all parties are treated fairly during the transition.
Are there any legal repercussions for removing a member from an LLC?
Yes, removing a member from an LLC can have legal repercussions. If not conducted in accordance with the operating agreement or state laws, the removal could lead to disputes, legal claims, or even involuntary dissolution of the LLC. It’s crucial to follow the proper procedures to minimize potential legal issues.
What role does a business attorney play in the member removal process?
A business attorney plays a vital role in the member removal process by providing legal guidance, ensuring compliance with the operating agreement, and representing the LLC’s interests in potential disputes. Their expertise helps navigate the complexities of the removal process, from drafting necessary documents to advising on the implications of the member’s departure.
Additional Resources
Piercing the Corporate Veil in Texas
What Is the Difference Between an LLC and a DBA?
Suing an LLC with No Assets in Texas: What You Need to Know
Where You Can Find Our Austin, Texas Office
Where You Can Find Our Abilene, Texas Office
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.