The process of removing a member from an LLC in California is not always easy.
It usually requires that the existing members vote on whether or not to remove the LLC member in question, and if they do, then it's up to the individual who has been removed to follow through with their end of the bargain.
This article will walk you through all of this and more so that when you're ready, you'll know exactly what needs to be done and how it must be done while adhering to the operating agreement.
What Legal Documents Do You Need?
Depending on how the business was organized, the removal process can vary significantly and involve filing dissolution papers with the Secretary of State.
The first thing to do is make sure you have all the required information and legal documentation.
You will need the following:
- The Articles of Organization
- Operating Agreement
- How many members there are in your LLC and their names,
- How much percentage of LLC ownership each LLC member has?
Once you have the information, it's time to remove a member from a limited liability company in California. This process can be done in two ways: by operating agreement or by judicial proceeding.
A member of an LLC can only be removed via written notice of withdrawal unless the LLC's articles of organization or LLC operating agreement in question specify a method for LLC members to vote out other members.
The number of votes required should be specified in the operating agreement (unanimous consent or partial 50/50).
California law supplies default rules for the default procedure that applies to voluntary withdrawal from a California LLC.
If there are multiple members in your CA LLC, the remaining members must sign the notice of withdrawal.
The notice of withdrawal must specify the effective date of the withdrawal and identify any known debts or other obligations owed by your LLC.
If you voluntarily withdraw from an LLC without following these rules, then California law may treat this as wrongful dissociation under California's right of control statute.
If there is only one member in your California LLC, that person can withdraw from an LLC for any reason by giving written notice to the California Secretary of State.
Withdrawing members must generally still comply with the terms of the LLC's operating agreement or articles of organization.
Statement of Information (Form LLC-12) is the document that the withdrawing member has to fill out and pay the filing fee.
The Secretary of State does not provide any assistance in completing this document.
Other Reasons for Withdrawal
The death of a member could be the reason why their name has to be removed from the LLC formation documents. There should be a provision explaining what needs to happen with the deceased member's share in the LLC in these instances.
The departed member's share must be purchased by surviving LLC's members only if there is a provision allowing them to do so in the articles of organization or operating agreement; otherwise, they will automatically become owners of that deceased's membership interest, and their names would have to appear on all documents.
What to Do after Removing a Member?
The state's laws require that the other members of the limited liability company report ownership changes and provide other information for the new LLC ownership to the California Secretary of State.
The remaining members must file an amended Articles of Organization with the state as soon as possible and pay a $30 filing fee.
There are two forms available, depending on how you wish to proceed after removing a member from a California LLC. If you want your former Articles to remain public, file the Amendment to the Articles of Organization (Form LLC-2).
If you wish to replace the old Articles entirely, file Restated Articles of Organization (LLC-10).
If the limited liability companies' dissolution occurred due to a court ruling or legal action, you must file a Certificate of Cancellation (Form LLC-12) with the state. Consider getting a law firm since the state LLC laws vary, even when the operating agreements may look the same.
How Do I Remove a Manager from My LLC in California?
The operating agreement has supremacy when dealing with manager removal. Once removed, the manager no longer has the capacity to act on behalf of the LLC as per the operating agreement.
The remaining limited liability company members must then fill the vacancy by appointing a new manager and filing the Amendment to their Articles of Organization so as to update the information.
When writing the provisions containing manager removal for a small business in the operating agreement, hire a law firm to assist you in these matters because of their intricacy and the need for specificity.
How Do I Remove an Agent for Service of Process in California?
Changing an agent for service of the process entails notifying the agent updating the LLC's Articles of Organization with the Secretary of State by filling in the name and address of the new agent in the new document.
If the agent wants to resign, they will send a Resignation of Agent for Service of Process to the SOS in person or by mail.
Can LLC Members Sue Each Other in California?
Yes, LLC members can sue each other in California.
The reasons for suing a member may be a breach of fiduciary duty if the person who is being sued acted as a manager of the company and breached their duties to act in good faith towards his fellow owners.
When a Member Dissociates, What Does That Mean?
Voluntary dissociation of a member is when the member decides to leave the LLC.
The involuntary dissociation of a member is forcing LLC members out of the company, usually due to a dispute or conflict, such as the terms stated in the operating agreements.
Can a Member Force a Buyout?
Yes, the California Limited Liability Company Law does allow a member to force a buyout of their membership interest. The law allows for forced buyouts under certain circumstances. If members change ownership percentages in an LLC or dissolve, a buyout may be required.
This process is called redemption, and it can be initiated by either the LLC or the departing member.
How to Properly Remove a Member From an LLC in California?
If you have to remove a member of your business in the future, do yourself a favor and prepare for this possibility when you first start your company through the operating agreement, so there are no disputes or confusion about which steps need to take place.
Make sure to have an LLC operating agreement in place before starting your business, as well as a buy-sell agreement that specifies what happens if one or more members have to leave the company at some point down the road.
Seek professional legal help before making any changes to your operating agreement.