If you have a limited liability company (“LLC”) in Texas, you might be wondering how to remove a member from an LLC.
Many circumstances may warrant your desire to remove someone.
Often, LLC members retire.
They may also simply wish to give up their interest in the LLC to do something else.
There may also have been a disagreement between the LLC members, and perhaps one wants to sever their ties with the business.
No matter the reason, removing an LLC member is quite common for companies. It’s vital that you do everything lawfully and within the bounds of the LLC’s procedures.
In this article, we’ll discuss how to remove a member from an LLC in Texas.
If you have any questions, don’t hesitate to contact The Curley Law Firm today.
How to Remove a Member from an LLC in Texas
How you remove an LLC member will depend on the company’s internal procedures.
Review the Operating Agreement
First, review the LLC operating agreement. The operating agreement is the document that controls the day-to-day operations of the company. Usually, operating agreements are created when the LLC is formed.
Members may have to vote on the removal or follow specific procedures to do so. If the member who is leaving is choosing to resign voluntarily, they may also have certain formalities they need to meet.
All relevant parties should keep a written record of the procedures through an LLC members’ meeting.
Establishing the proper procedure for removing a partner becomes even more crucial if your operating agreement specifies different removal conditions for voluntary versus involuntary departures. For example, the agreement could detail:
- How much notice you must provide,
- The number of votes required, or
- The specific reasons for removing someone involuntarily.
Not adhering to the operating agreement’s provisions can expose your company to costly legal disputes or operational challenges, underscoring the need for careful compliance.
Review Any Additional Written Agreements, Such As a Buyout Agreement
If the LLC has other written agreements, such as a buyout agreement, you’ll need to review that as well.
The buyout agreement may have information about how to pay out a member who is leaving. It may also discuss what the other members should do about the departing member’s interest.
For example, the buyout agreement might set a formula for calculating the departing member’s financial interest, factoring in the LLC’s valuation, the member’s contributions, and any outstanding obligations. It may also define a payment timeline or specify whether the LLC or remaining members must purchase the departing member’s interest. Following the terms helps make transitions easier, reduces confusion, and promotes good relationships within your company.
Complete the Membership Change
Based on what is contained within the documents, do everything required to complete the Texas LLC change of ownership.
This will include keeping a written record of the events for the removal, as well as adequately paying out the departing member.
To formalize the process, ensure all necessary parties sign resolutions or agreements documenting the removal. Keeping these records is vital as they provide transparency, clarity, and legal protection, helping to avoid conflicts and ensuring compliance. Additionally, reassigning obligations like loans or contracts tied to the departing member’s role mitigates long-term risks to the LLC’s financial stability.
Inform the State of Texas
There is no requirement for the remaining LLC members to amend their documents with the Texas Secretary of State. You would need to update the Secretary of State if the registered agent or office address changed, however.
What you will need to do is update the list of LLC members with the Texas Comptroller’s office through an annual Public Information Report.
While it’s not required, submitting an amendment to the Certificate of Formation with the Secretary of State can demonstrate transparency and strengthen relationships with banks, vendors, and other third parties. Keeping accurate records with the State Secretary and Comptroller’s offices helps you remain compliant, reducing the chance of fines and violations.
Get an Attorney’s Help
Just like filing an LLC, the process for how to remove someone from an LLC in Texas can be quite technical. It’s a good idea to get an experienced attorney’s help, not just to review the LLC’s documents, but also to complete the ownership change.
The Curley Law Firm can help with your Texas LLC change of ownership or answer any questions that you may have. Contact our office conveniently located in The Heights today.
FAQs
Can a Member Be Removed from an LLC Without Their Consent?
Yes, but only under certain conditions. The operating agreement usually outlines the process for involuntary removal, which may include the need to have proper grounds for removal. Such grounds can include:
- Breach of duty,
- Criminal activity, or
- Actions that harm the LLC.
If no such provision exists in the operating agreement, the LLC may seek a judicial remedy to remove the member. Texas courts generally require strong evidence of misconduct or a breach of the operating agreement to approve such action.
What Happens to the Departing Member’s Ownership Interest in the LLC?
The operating or buyout agreement typically addresses what happens to the departing member’s ownership interest. In most cases, the LLC or remaining members must buy out the departing member’s interest at fair value, which may require a valuation of the LLC’s assets. If no agreement exists, the LLC must negotiate buyout terms or follow default provisions in the Texas Business Organizations Code.
Can the Remaining LLC Members Continue Operating Without Amending the Operating Agreement?
While it’s possible to continue operations without amending the operating agreement, doing so is not recommended. Not updating the agreement can lead to legal ambiguities, especially if disputes arise regarding ownership or management roles. Revising the agreement ensures that the LLC’s structure and procedures remain clear and legally sound.
Rather than leaving these important decisions to chance, schedule a consultation with The Curley Law Firm today to protect your business.
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