People form businesses together with the best of intentions. Entrepreneurs share a vision and work together to realize it.
In many cases, they create a limited liability company (LLC) to maximize tax benefits and minimize business formalities.
Unfortunately, the business world is not all sunshine and harmony.
When conflict arises, many companies find themselves asking how to remove a member from an LLC to protect themselves and their business interests.
Whether you need to remove a member from an LLC because of conflict, financial wrongdoing, or simply because the members’ interests have diverged, the process is the same.
In this guide, we will walk you through your options for removing an LLC member under Texas LLC law. If you have any questions, please contact us online today.
Can a Member Withdraw or Be Expelled From a Texas LLC?
No, under Texas law, an LLC member cannot voluntarily withdraw or be expelled from an LLC. There are three primary ways a member can be removed from a Texas LLC—by complying with the operating agreement or by seeking voluntary or involuntary dissolution.
The options available to you will depend on the specific facts and circumstances of your situation. The experienced business attorneys at Massingill can explain how to remove a member from your LLC and help you evaluate your options.
How to remove a member from an LLC in Texas is complicated. However, courts will usually honor the terms of your operating agreement that specify how members can be removed.
The operating agreement is the document that controls the day-to-day operations of the company. Usually, operating agreements are created when an LLC is formed.
If your operating agreement specifies how to remove a member from an LLC, you will be able to follow that protocol when expelling a member or allowing them to withdraw.
Members may have to vote on the removal of a member or may have to follow specific procedures to complete the removal.
If the operating agreement allows, the member who is leaving may be able to resign voluntarily. In that case, they may also have to comply with certain formalities.
In keeping with good governance and with the organization’s bylaws, parties should create a written record of the removal process through an LLC members’ meeting.
In the absence of an operating agreement with clear instructions on withdrawals and expulsions of members, Texas LLC law requires the entire LLC to dissolve in order to expel a member. Voluntary dissolution of the LLC requires a majority vote of the members.
If a majority of the members vote to dissolve the company, then all the members will be removed from the company, and they are free to start again—this time, without the member they wanted to remove.
Involuntary dissolution of an LLC requires a court order. Legal scholars in Texas have noted that this creates a significant conundrum if there is no operating agreement or any other agreement between the members of the LLC.
This is one important reason, among many others, to prepare a written operating agreement for your LLC.
An experienced business formation attorney in Texas can help you craft an agreement that meets the specific needs of your business. The Massingill team is experienced in handling both business formations and business dissolutions.
What Do Other Agreements Besides the Operating Agreement Say?
Whether your withdrawal, expulsion, or dissolution is done by the agreement of the members or by court order, other documents may be relevant to the process.
In fact, “How do I remove a member from an LLC?” is not the only question you should be asking. You may also need to ask, How much will it cost to remove a member from the LLC?
Asking this question is especially important if the LLC has other written agreements, such as a buyout agreement, in place.
In its simplest form, a buyout agreement is a document that provides information about how to compensate a member who is leaving the LLC. It may also discuss what the other members should do about the departing member’s interest.
If your company has a buyout agreement, reading it in combination with your operating agreement can provide answers about the “how” and “how much” when removing a member from your LLC.
How Do You Complete The Membership Change?
If you complete all of the steps required by your documents or a court of law, you will have done everything needed to complete your Texas LLC change of ownership. You will need to keep a written record of the removal, as well as adequately pay out the departing member.
When the membership of your LLC changes, there is no requirement for the remaining LLC members to amend their documents with the Texas Secretary of State.
You will, however, need to update the list of LLC members on file with the Texas Comptroller’s office through an annual Public Information Report.
You also need to update the Secretary of State if other fundamental information about your LLC changed when you expelled a member.
For example, if there are changes to your registered agent or office address, you will need to file an amendment with the Secretary of State noting those changes.
How a Business Attorney at Massingill Can Help
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.