If you are a member of an LLC in Texas and want to leave the business entity, there is no one-size-fits-all removal process.
How to remove a member from an LLC in Texas from the company depends on how the company was organized in the first place. More precisely, it depends on specific provisions that are in your LLC operating agreement and the Certificate of Formation.
There are only two options for removing members from a Texas LLC if your operating agreement does not contain a provision for withdrawal or expulsion. Voluntary dissolution is the first choice, and judicial dissolution is the second.
Voluntary Removal
Texas law doesn't have a clear-cut statute that specifies membership withdrawal from the company, either voluntarily or involuntarily.
For this reason, the chief document that will dictate this procedure is the LLC's operating agreement.
Voluntary withdrawal of a member from an LLC in Texas means that a member has decided or has been agreed that they will no longer be associated with the limited liability company act.
The process of voluntary removal is initiated by the remaining LLC members, who have to follow the procedure specified in the operating agreement.
Usually, the operating agreement will specify the following:
- The conditions that must be met before a member can voluntarily withdraw (a majority vote, for example)
- How the notice of withdrawal is to be delivered to the withdrawing member
- What happens to the withdrawing member's interest in the LLC, and how it's disposed of?
If there's no operating agreement or if it doesn't address these matters, then state law will apply.
Unless your LLC operating agreement specifies otherwise, the departing member should send a written notice of resignation to the limited liability company.
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Involuntary Removal
The involuntary withdrawal of a member form requires similar procedures, depending on the reasons why that individual member is leaving the company.
Court grants may be necessary to compel a member to leave an LLC involuntarily in some cases, which may result in judicial dissolution.
The reasons for the involuntary withdrawal of a member include:
- Failure to comply with the company's operating agreement
- Not contributing capital or performing services as agreed
- Wrongfully taking company property
- Committing a felony or other serious crime that adversely affects the LLC.
Steps after Removing an LLC Member
Regardless of whether you're expelling someone of your own accord or they're leaving the company of their own will, notify the Texas Secretary of State as soon as possible after they've been removed.
Update the necessary information about your LLC on their website and update all the internal documents, including operating agreements.
Your operating agreements and other legal documents shouldn't be left unchanged, even if this one change went down.
On top of that, banks or landers might also want you to update them on the latest events within the company, hence the need to update the operating agreement document.
Membership Change and Buyout Agreement
Member's ownership interest in the LLC can be transferred to another LLC member or sold to a third party.
However, if the selling member is not a manager of the LLC, then the selling member's transfer of ownership must be approved by the remaining members.
To avoid disputes between the members, a buy-out agreement should be drafted and signed by other members prior to any membership changes.
An ownership change in a Texas LLC can be difficult, but with a membership change agreement in place, the transfer of ownership can be accomplished without any disputes between the members.
FAQs
How Do I Remove a Manager from My LLC in Texas?
Depending on your management structure, the procedures for the removal of managers may vary. In general, you will need to adopt a resolution to remove the manager and then notify the manager of the removal.
If your LLC is member-managed, any member may vote to remove a manager with or without cause.
If your LLC is manager-managed, the board of managers may remove a manager with or without cause. Only the members (or, if applicable, the board of directors) can remove a manager.
How Do I Remove a Member from an LLC with the IRS?
Unless that member is the responsible party for the limited liability company, you don't have to report it to the IRS.
However, if the departing member from an LLC is responsible, you must file Form 8822-B with the IRS no later than 60 days after establishing a new membership structure.
How Do You Notify the IRS of a Change of Ownership of a Single-Member LLC?
If the LLC's filing includes a member as responsible, the IRS must be informed by Form 8822-B, and a new Responsible Party must be designated.
File this form with the IRS no later than 60 days after you establish a new LLC membership structure.
Conclusion
There are a lot of reasons to plan ahead and get your business documents in order when you start. It includes your operating agreement.
The best way to avoid disputes down the road is by having clear expectations for all members from day one.
If you're looking to remove a member from an LLC, you need to amend your LLC operating agreement and be sure that they have been notified of their removal and work with a law firm or attorney who can help guide you through this process.
