Monday, December 8, 2008

Documenting Member Withdrawal

Question: I need to know how to go about taking a member off of the LLC Operating Agreement. The members name is Sandra who is no longer going to be with the company. Any information you could give me to help us go about dropping a member would be very much appreciated. Phil.
I'll assume Sandra is voluntarily withdrawing from the LLC as a member or otherwise being bought out. The method by which a member withdraws should be set forth in the LLC operating agreement. If you purchased an LLC operating agreement form from®, it offers options for users to include member withdrawal provision in the agreement and, if you so elected, those terms would be found in paragraph 7.2. See sample LLC operating agreement. If you don't have an operating agreement that specifically sets forth how a member withdraws, seek counsel from a local lawyer with experienced in corporate / business law. The best course of action is to have a local lawyer handle the entire transaction regardless of whether or not you have a operating agreement. If a purchase of an LLC interest from a withdrawing member is involved, you need a sales contract. See the® asset sales contract and determine whether or not it fits your needs. Again, the advice is lawyer is encouraged.

The next step is amend the operating agreement to reflect to the new membership interests. Instructions on this topic can be found here. Do you need to file anything with the secretary of state's office to reflect the change in ownership? Normally, nothing is filed at the time of the withdrawal and the secretary of state's office becomes aware of the withdrawal of a member when the annual report is filed; however, this is not universally the case. Some states have specific forms for LLC member withdrawal that are filed at the time of the event. I suggest you contact the corporate division of the secretary of state's office and ask them. Links to the secretary of state office for each of the 50 states may be found here. State by state information.

No comments: