If you are a member of an LLC in Texas and want to leave the business, 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.

The first step is to double-check that you have all of the necessary information and legal paperwork. Once you make sure all legal documents are in place, there are a few additional things to consider. The biggest difference in the removal procedure will depend on the circumstances under which the LLC member is leaving the company - voluntarily or involuntarily.

Voluntary Removal

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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.

The process of voluntary removal is initiated by the remaining members of the Texas LLC, 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.

The letter should include time-sensitive information, most importantly, the effective date of resignation, which is typically the day that the LLC receives the letter.

The member's interest in the company will then be terminated, and they'll no longer have any rights or liabilities associated with it. Any distributions that are owed to them must be paid out according to state law.

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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.

The reasons for the expulsion 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.

If the departing member is not voluntarily withdrawing, the remaining members must take certain steps to ensure that the business can continue without any interruptions. If you are concerned that one of your members may be causing problems for your LLC, you should speak with an attorney as soon as possible.

During the procedure, you must also understand how to safeguard the remaining LLC members from legal responsibility and protect their assets. In some cases, this may require establishing a new LLC altogether.

Steps after Removing an LLC Member

Woman holding a clipboard with documents inside

Regardless of whether you're expelling someone of your own accord or they're leaving the company at their own will, notify the Texas Secretary of State as soon as possible after they've been removed.

Update the information about your LLC on their website and update all the internal documents, including operating agreements.

Your documents shouldn't be left unchanged, even if it's just this one change that went down.

On top of that, banks or landers might also want you to update them on the latest events within the company.

Unlike some other states, Texas doesn't require filing an amendment to their Certificate of Formation with the SOS if there is a change in the membership structure. You only have to do it if you change your office address or your registered agent.

You'll also need to file an annual Public Information Report with the Texas Comptroller's office. The report should contain updated information about your business.

Membership Change and Buyout Agreement

Member's ownership interest in the LLC can be transferred to another 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.

The buy-out agreement should set forth the terms and conditions of how a member can sell or transfer their ownership interest and the price that will be paid to the selling member.

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.

The procedure for removing a manager who is also an owner (a member) of the LLC is set forth in the Texas Limited Liability Company Act. 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 Registered Agent from My LLC in Texas?

A registered agent can resign or be removed. If the owners decide to remove the registered agent, they have to file a Change of Registered Agent with the Texas SOS and pay a $15 filing fee.

How Do I Remove a Member from an LLC with the IRS?

Unless that member is the responsible party for the LLC, you don't have to report it to the IRS.

However, if the departing member is the responsible party, you need to file Form 8822-B with the IRS no later than 60 days after you establish 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 the Responsible Party, the IRS must be informed by the 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 membership structure.

Conclusion

There are a lot of reasons to plan ahead and get your business documents in order when you start.

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 an owner from your LLC, 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.

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