How to Remove a Member From an LLC in Texas? (Full Guide)
If you are a member of an LLC and want to leave the business entity, there are certain steps you have to follow.
Removing a member in Texas 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 - voluntary dissolution and judicial dissolution.
With over a decade of practice as a consultant and legal advisor in business law and LLC formation, I'll provide you with a detailed guide on how to remove an LLC member in Texas. The article is backed by in-depth research and legal advice from our panel of attorneys.
Quick Summary
- To remove a member from an LLC in Texas, follow the provisions indicated in the operating agreement. However, if the entity does not have bylaws, the state allows the members to decide on the issue.
- Under Texas LLC law, a member is obligated to remain in the company and may be removed only if the business is dissolved.
- After the member is removed, it is necessary to inform the Secretary of State and file an amendment to the LLC's formation documents.
Steps to Remove an LLC Member in Texas
To effectively remove a member in Texas, you should follow these steps:
- Consult the LLC's operating agreement.
- Apply the provisions of the operating agreement.
- In the absence of an operating agreement, the state allows the LLC to draft one as long as there is a unanimous vote from the company's members.
Voluntary Removal
Voluntary removal of LLC members is not allowed under Texas law unless a provision is indicated in the operating agreement [1].
Voluntary withdrawal of a member from an LLC in Texas means that a member has decided or has agreed that they will no longer be associated with the limited liability company.
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)
- Notice of withdrawal
- Buyout provision
- Distribution of withdrawing member's ownership interest
If there's no LLC 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.
Involuntary Removal
The involuntary removal of a member 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
There are certain steps to follow after removing a member regardless of whether the owner voluntarily withdraws or is expelled from the company.
- Notify the Texas Secretary of State as soon as possible
- Update the Texas LLC operating agreement and file an amendment on the LLCs formation documents.
- Inform financial institutions such as banks and loan associations
Membership Change and Buyout Agreement
A membership change can be settled by a buyout agreement to avoid disputes between the owners.
A dismissed member's ownership interest in the LLC can be transferred to another member or sold to a third party.
If the member you want to remove happens to hold a LLC managerial position, the provisions indicated in the operating agreements still apply.
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.
Related Articles:
- How to Apply for an LLC in Texas
- Texas Registered Agents
- Cost To Start An LLC In Texas
- Dissolving an LLC in Texas
FAQs
How Do I Remove a Manager from My LLC in Texas?
To remove a manager from your LLC in Texas, the members will need to adopt a resolution and notify the manager of the removal.
If your LLC is member-managed, any member may vote to remove a manager with or without cause.
How Do I Remove a Member from a Texas LLC with the IRS?
To remove a member from a Texas LLC, you must file Form 8822-B with the IRS no later than 60 days after establishing a new membership structure.
It is necessary to remove a member from a Texas LLC with the IRS if the individual is a responsible party.
How Do You Notify the IRS of a Change of Ownership of a Single-Member Texas LLC?
To notify the IRS of a change of ownership of a single-member Texas LLC, you should submit 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.
What Is the Role of the Texas Secretary of State in the Removal of a Member From an LLC?
Under Texas LLC law, the Secretary of State doesn't play a direct role in the removal of a member from an LLC. However, changes regarding the departing member's interest might require filing amendments to the formation documents with the Secretary's office.
Removing a Member From an LLC in Texas
To remove a member from an LLC in Texas, it is necessary to consult your operating agreement.
However, if there are no provisions indicated in the document, you can amend your operating agreement to address the concern. You can employ IncFile to help you with the process and ensure the legality of the document.
Consult with the other members and formalize the decision through voting.
The company should notify the Secretary of State, the IRS, clients, creditors, and other institutions.
References:
- https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#:~:text=101.107
