Info about the Limited Liability Company & Corporation

Can an LLC Member Be Removed as a Member against his/her will?

I get so many questions from members of an existing LLC about the ability to “get rid of” or remove another member from the LLC.

The ability of an LLC or another member to unilaterally remove another member is only possible if there is a right to do so in the LLC Operating Agreement of the LLC and the member to be removed has agreed to be bound by the LLC Operating Agreement.  This right can also be in another separate document as long as the agreement is in writing and the member to be removed agreed to that document by signing it.

Absent any provisions in a written document that provide for automatic renewal, one cannot unilaterally take back an LLC ownership interest previously granted to an LLC member.

An LLC Ownership interest is personal property just like stock in a corporation or any other personal asset you own like your car or a book you bought from the store.  No one can just come and take your car away from you or take any of your personal belongings unless you have signed an agreement agreeing to allow them to take it back.

The law in the US protects ownership and so once an LLC issues an ownership interest to a person and that person becomes a member, the ownership interest held by that member is personal property of that member and is only subject to any restrictions contained in the LLC Operating Agreement.

This issue is an important one though for multi-member LLCs.  If members of an LLC have disputes or otherwise do not agree on an LLC matter, sometimes the LLC will end up in deadlock which is not good for anyone.  So, the astute LLC owner should address this in the LLC Operating Agreement.

Similarly, some LLCs grant membership interests to a person with the assumption that the person will devote time and efforts to build the LLC business.  After issuance, what happens if the person does not do anything- does he/she still get to keep the interest?  If there was no agreement in writing providing for a forfeiture or a vesting based on the services to be provided, then yes, an outright issuance without any restrictions gives him/her an absolute ownership right.

In summary, it is important for all planning issues that an LLC or its members may face to be addressed at the beginning of an LLC arrangement in the LLC Operating Agreement or in other legal agreements between the LLC and its members.

A common method for allowing the automatic removal of a member is called a buy-sell provisions which allows the LLC to buy back the interests automatically at a FMV or a predetermined price.  These provisions can be quite complex and should be tailored to your LLC based on your specific LLC situation and your members.  Retaining a qualified attorney to advise on these matters is always recommended.

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