Two friends and I formed an LLC a few years ago. We are each members of the LLC.
Now, one of the members hasn't been pulling his weight, and we have all agreed that it's best for all involved to cut ties. As such, the member in question has agreed to withdraw voluntarily from the LLC. But the remaining member and I want to continue operating the LLC.
My question is, once the withdrawing member formally withdraws from the LLC (via a resignation/withdrawal letter), does that also extinguish any ownership interest he has in the LLC? In other words, does the former-member still have any rights to share in profits, or in any intellectual property that the LLC develops? If so, how can we terminate his interest entirely?
Your LLC's Operating Agreement should spell out how a member can withdraw and what they're entitled to. generally, a withdrawing LLC member can resign their position (as an officer or employee) without giving up their membership/ownership shares.
If the withdrawing the member and the remaining members want the withdrawing member to relinquish their membership shares and ownership, they're free to do that.
Whatever the LLC members decide, all parties have a strong interest in documenting everything so everyone's clear and agrees re: remaining liabilities and assets, future liabilities and assets/income, buyig back the membership shares, whether the withdrawing member can compete, etc. This isn't not a DIY job, so the LLC should hire a business lawyer for help.
Michael Raymond DaymudeLitigation LawyerSherman Oaks, CA ·
Than answer to your questions should be contained in the member or operating agreement or similar.
If not, then the three of you need to agree on what rights, if any, the withdrawing member has and how much the other members will pay for the withdrawing member's interest.
Beware that you can only determine rights among yourselves -- not rights of third parties. The withdrawing member will still be liable on any guarantees, leases, etc., or any member liability to a third party incurred during the membership.
It would be prudent for the withdrawing member and the remaining members to have counsel so that each party’s interest can be adequately protected and litigation – which would be costly for all members -- does not ensue down the road.
I concur with my colleages that the operating agreement should have the details on the method and consequences of "withdrawal." It may or may not involve a surrender of sale of the membership interest. For a detailed analysis, you would need to hire an attorney to review the facts and documents and discuss the options.
