How to Remove a Member From an LLC in Texas? (Full Guide)
Removing a member in Texas depends on specific provisions that are in your LLC operating agreement and the Certificate of Formation.
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.
- If an entity does not have bylaws, the state allows the members to decide on the issue.
- According to the U.S. Small Business Administration, 99.8% of all companies in Texas will be small businesses in 2022.
- After the member is removed, I highlight that it is necessary to inform the Secretary of State and file an amendment to the LLC's formation documents.
Understanding LLC Membership Structures
LLC membership structures are defined by state business laws and the LLC’s operating agreement. Members hold specific rights and responsibilities that dictate their roles and obligations within the company.
Typically, LLC members have the right to vote on major decisions, share in profits and losses, and access company records. Understanding the LLC membership structure is crucial for effective management and decision-making within the company.
By clearly defining each member’s role and ownership interest, the LLC can operate smoothly and avoid potential conflicts.
Ensuring that all members are aware of their rights and responsibilities as outlined in the operating agreement is essential for maintaining a harmonious and productive business environment.
Steps to Remove an LLC Member in Texas According to the LLC's Operating Agreement
Drawing from my experience, 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.
"To be successful in business, or in life, the things you acquire matter just as much as the things you let go."
- Jon Morgan, CEO & Editor-in-Chief of Venture Smarter
Voluntary Removal
Voluntary removal of LLC members is not allowed under Texas law unless a provision is indicated in the operating agreement [1].
A voluntary withdrawal of a member from an LLC in Texas means that the member has decided or has agreed that they will no longer be associated with the limited liability company.
In some cases, voluntary dissolution may be necessary if the operating agreement does not provide clear withdrawal procedures.
For our Texas LLC, this process of voluntary removal was initiated by the remaining LLC members, who followed 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
From my experience with Texas LLCs, 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.
Filing Changes with the Texas Secretary of State
When removing a member from an LLC in Texas, it is necessary to notify the Texas Secretary of State. This involves submitting specific forms and ensuring accurate, up-to-date records.
The LLC must file a Certificate of Amendment with the Texas Secretary of State to update the company’s records. This form is used to update information, including changes to the registered agent or office address.
Additionally, the LLC may need to file a Notice of Termination to update the public records and ensure that the departing member no longer has any legal connection or responsibility within the LLC.
Keeping the Texas Secretary of State informed of these changes is crucial for maintaining the legal standing of the LLC and ensuring compliance with state regulations.
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 LLC's formation documents.
- In our case, we also informed financial institutions such as banks and loan associations
Membership Change and Buyout Agreement for Member's Ownership Interest
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.
An operating agreement that includes a provision on ownership change should be in place since, according to the Texas Secretary of State, in 2024, 89.48% of new business entities formed in Texas were LLCs.
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
Legal Considerations and Compliance
Removing a member from an LLC in Texas requires meticulous attention to legal procedures to ensure compliance with state laws and the LLC’s operating agreement.
Understanding the legal implications and seeking expert advice are crucial steps in this process.
An experienced business formation attorney can navigate the complexities of removing an LLC member and ensure that all procedures comply with statutory requirements.
It is essential to avoid legal pitfalls by following the LLC’s operating agreement and seeking legal advice when necessary.
Failure to comply with Texas law and the LLC’s operating agreement can lead to legal disputes and potential litigation.
LLC members can ensure a smooth and legally compliant removal process by adhering to the proper legal procedures and consulting with a knowledgeable business attorney.
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 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 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.
References:
- https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm
