How to Leave an LLC or Remove a Member

Removing a member and leaving an LLC are the same event seen from two sides. The law calls it dissociation. Whether it happens cleanly depends almost entirely on one document: the operating agreement.

What Does the Operating Agreement Say?

Read it before you do anything else. A well-drafted agreement answers most of this for you:

• Withdrawal: whether a member can leave, how much notice they must give, and whether leaving early is a breach
• Expulsion: what vote it takes to remove a member, and for what reasons
• Buyout: whether the company or the other members must buy the departing member's share, and how the price is set
• Transfers: whether a member can sell their interest to an outsider, or only to the existing members

If the agreement covers your situation, follow it. Courts generally enforce these terms as written, and acting outside them is how a disagreement turns into a lawsuit.

If your LLC never had an operating agreement, state law is your operating agreement. Most people find out what it says at the worst possible time.

Can a Member Just Leave?

In many states, yes. About twenty states have adopted the Revised Uniform Limited Liability Company Act, and under it a person stops being a member as soon as the company has notice of their "express will to withdraw." Leaving can still be wrongful if it breaks the operating agreement, and a member who withdraws wrongfully is liable for the damage it causes.

Delaware is the main exception. A member of a Delaware LLC cannot resign before the company dissolves unless the LLC agreement allows it (6 Del. C. 18-603). Check your state's rule before announcing that you are out.

Does a Departing Member Get Paid?

Not automatically, and this is the part that surprises people. Under the uniform act, a member who leaves loses their vote and their say in management, but keeps their economic interest as a transferee. They are entitled to whatever distributions the company makes on that interest, and nothing forces the company to buy it.

That is why a buyout clause matters so much. Without one, a departing member can end up holding a share of a company they no longer control, with no way to cash it out. If you are leaving, negotiate the buyout before you send the withdrawal notice, not after.

Can You Remove Another Member Against Their Will?

Only through the operating agreement or one of the narrow paths in state law. Under the uniform act, the other members can expel someone by unanimous consent only in limited cases, such as when the member has transferred all of their interest or when it has become unlawful to carry on the business with them. Beyond that, expulsion takes a court order, which is available for serious misconduct like conduct that harms the business or a material breach of the operating agreement.

"We don't get along anymore" is not on that list. If the members are deadlocked and nobody will buy anyone out, the realistic options are a negotiated buyout or dissolving the LLC and splitting what is left.

What Changes for Taxes When a Member Leaves?

It depends on how many members remain.

• Two or more members remain: the LLC is still taxed as a partnership. The departing member gets a final Schedule K-1 for their share of the year.
• Only one member remains: the partnership ends for tax purposes and the LLC becomes a single-member, disregarded entity. File a final Form 1065 for the partnership, and from then on the remaining owner reports the business on their own return.

The LLC keeps its EIN either way. Treasury regulations say an entity that has an EIN "will retain that EIN if its federal tax classification changes." If the departing member was the LLC's responsible party with the IRS, file Form 8822-B within 60 days to name the new one.

What Do You File With the State?

Usually less than people expect. Many states do not list members in the public record, so a member leaving often requires no state filing at all. Update the state record if the departing member was listed as a manager, organizer, or registered agent, and make sure the next annual report shows the current people.

Inside the company, put it in writing: a signed withdrawal or buyout agreement, an amended operating agreement, and updated bank signers. Those are the documents you will need if anyone disputes it later.

When Is Dissolving the Better Answer?

When nobody wants to keep running the business. If the member leaving was the one doing the work, or the remaining members cannot agree on anything, keeping the LLC alive just keeps the annual reports, the state fees, and the tax returns coming. Our guide to dissolving a multi-member LLC covers the vote, the winding up, and how the remaining assets get divided.

If you decide to close it, we file the dissolution in any state for $99 plus the state fee at cost.