A limited liability company (LLC) is an efficient and effective way to structure a business in many different circumstances. As explained by the Texas Secretary of State, an LLC is “a distinct type of entity that has the powers of both a corporation and a partnership.” As noted by the Internal Revenue Service (IRS), the owners of an LLC are typically called “members.” Even if you Texas LLC enjoys many years of smooth, successful operations, there may come a point where you need to remove one or more members from the company.
Reasons for Removing a Member from an LLC
Why might it be necessary to remove a member from an LLC? In some cases, an owner (member) may simply be ready to retire from professional life. In other cases, you may be in dispute on how to handle the business, or a fellow member may be acting in bad faith or failing to meet obligations. You may wish to remove this member in order to protect your legal rights and business interests.
Removing a Member from an LLC in Texas
What are the steps to remove a member from an LLC? Texas LLC Law does not allow for the removal of a member from an LLC. Therefore, this process is dictated by the LLC’s governing documents: typically the LLC’s operating agreement and sometimes a secondary membership agreement.
When you set up an LLC in Texas, you are required to file a certificate of formation with the Texas Secretary of State. You are not legally required to have an operating agreement for your LLC—though, it is always best to operate an LLC with a professional operating agreement. Ideally, your governing documents—whether an operating agreement or other documents—will spell out procedures for voluntary and involuntary removal.
The provisions to remove a member might include:
- Notice—How far in advance member(s) must be notified and how that notification is to be handled
- Voting – How many votes are required to remove a member
- Valuation – How the value of departing member’s ownership interest will be calculated
- Buyout – Terms for payment of the departing member’s interest
- Any other conditions that must be met
A voluntary removal—where one party wants to leave the LLC—is not usually difficult and can be handled according to the provisions of the operating agreement with minimal disruption of your business. Involuntary removals are more difficult. However even in cases where there is a conflict between the members, it is sometimes possible to work out a settlement that ultimately results in the voluntary departure of the troublesome member. This solution is far better than an involuntary removal, but if your LLC’s governing documents provide for this procedure, it can be done.
After the removal of a member from an LLC, it is a good idea to review and, if necessary, revise core documents to reflect the change in ownership. In certain circumstances, you may also want to reach out to specific customers/clients or vendors/suppliers to provide notification. Texas law does not require that you file anything additional with the state unless your registered agent or official office address has changed.
Removing a Member from an LLC via Court Order
When there are no provisions for the removal of a member in an LLC’s governing documents, a court order is needed for a judicial dissolution of the LLC. If the process gets to this stage, it’s important that you hire an attorney who can advise you on the steps to take to ensure your business can continue with minimal disruption. Your lawyer can help you protect your assets and help set up a new business entity.
How the Texas Business Litigation Attorneys at Reid Dennis Frick Can Help
The business litigation team at Reid, Dennis & Frick has extensive experience handling cases involving limited liability companies. If you are considering taking action to remove a member from a Texas LLC, we are more than ready to help. Our trial-tested commercial litigation attorneys put a strong emphasis on helping our clients find efficient, cost-effective solutions. At the same time, we are always ready to take aggressive action to protect your financial interests.
Texas LLC Law: Frequently Asked Questions (FAQs)
How Long Does an LLC Last in Texas?
An LLC does not automatically expire in Texas. In some cases, a limited liability company may have a pre-specified expiration date within its formation documents or governing documents though that is certainly not required. An LLC can last indefinitely in Texas.
How Hard is it to Get an LLC in Texas?
A limited liability company is one of the easiest businesses to form in Texas and you can do it yourself, without a lawyer, through the Texas Secretary of State’s office. Though, it is worth emphasizing that this is not advisable. If you engage the services of an experienced business attorney when creating the LLC, your lawyer will help you prepare the proper governing documents—such as a professionally drafted and reviewed operating agreement—which will protect you in the future, should a dispute between members arise.
Can One Partner Dissolve an LLC?
It depends on the specific ownership structure. As a general rule, one member of an LLC can unilaterally force the dissolution of the company if he or she has at least a 50 percent ownership stake. An LLC member with a minority stake could also potentially force dissolution if permitted to do so under the terms of the operating agreement.
Get Help from Our North Texas Business Litigation Attorneys Today
Removing a member from an LLC can be complicated—especially if there is an underlying conflict. An experienced Texas business litigation attorney can review your specific circumstances, assess governing documents, explain your rights and responsibilities under Texas law, and help you take action to protect your financial interests.
At Reid, Dennis & Frick, our North Texas business litigation lawyers are committed to providing the highest quality of legal representation. If you have any questions about removing a member from an LLC, we are here to help. Give us a call now or contact us online to set up a strictly confidential initial appointment. With law offices in Frisco and Dallas, we provide business litigation services throughout North Texas, including in Fort Worth, Arlington, Plano, Garland, and Irving.