Removing a Member from Texas LLC | Things You Need to Know


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Steve Bennett
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Remove Member From Texas LLC

Limited Liability Companies (LLCs) are popular business structures in Texas because they provide flexibility in management and taxation while offering personal liability protection for their members. However, there may come a time when a member of an LLC needs to be removed for various reasons, such as retirement, disputes, or other personal circumstances. Removing a member from an LLC in Texas can be complicated, but understanding the legal requirements and following the proper steps can help ensure a smooth transition.

This article will guide you through Removing a Member from an LLC in Texas by discussing the legal requirements, preparing necessary documents, and providing helpful tips to avoid potential pitfalls.

Webinarcare Editorial Team will help you understand the process of removing a member. It would be best if all the factors in this article guided you.

What is a Limited Liability Company?

An LLC, or Limited Liability Company, is a type of business structure that offers a mix of features from partnerships and corporations. It provides its owners, known as members, with limited liability about the company’s debts or potential lawsuits, much like a corporation. At the same time, an LLC provides flexibility in management and profit distribution, similar to a partnership or sole proprietorship. LLCs can be owned by one or more individuals, corporations, or other LLCs. However, taxation in an LLC is pass-through by default, which means the profits or losses are reported on the owners’ individual tax returns.

Before you start a removing a member, it is advised that you consult with a legal expert. They will be aware of what’s best for you and your business. You can always start an LLC in Texas, if you wish to protect your personal assets from business debts.

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Reasons for Member Removal in Texas LLC

There could be several reasons why a member needs to be removed from an LLC in Texas:

  1. Breach of Agreement: All members are bound by the operating agreement of the LLC. If a member violates the agreed terms knowingly or unknowingly, this can be a reason for removal.
  2. Financial Mismanagement: If a member is found guilty of embezzling funds or other related financial misconduct, they should be removed to protect the company’s financial health.
  3. Criminal Activity: If a member is involved in criminal activity, this can put the entire company at risk. In such cases, removal is crucial to protect the LLC’s reputation and legality.
  4. Lack of Participation: If a member consistently fails to contribute to the business, either through capital, time, or expertise, they might be removed.
  5. Conflict of Interest: An LLC’s members must prioritize the business’s interests. If a member’s activities conflict with these interests, they might need to be removed.
  6. Irresolvable Disputes: Sometimes, members might have disputes that harm the company’s functioning. Removing one or more members involved might be necessary if such disputes cannot be resolved.
  7. Personal Reasons: Personal reasons such as bankruptcy, divorce, or incapacity can also necessitate removing a member from an LLC.

Removing a member from an LLC is a legal procedure. It may require a majority vote from the other members or depend on specific LLC operating agreement clauses. Legal advice from Texas Business Attorney should be sought when considering this action.

How to Remove a Member from Texas LLC

To remove a member from an LLC, you must follow the guidelines that include reviewing the operating agreement, consulting with a business attorney, obtaining the consent of the remaining members, preparing and executing a written agreement, updating the operating agreement, notifying the Texas Secretary of State, and updating the tax and financial records. These are the basic ones, so read the whole article until the end. 

Step 1: Review the Texas Operating Agreement

The first step in removing a member from an LLC in Texas is carefully reviewing the Texas Operating Agreement for your LLC. The operating agreement is the document that outlines how the Texas LLC will be managed and governed, including provisions for the removal of members. If the operating agreement contains specific guidelines for removing a member, those guidelines must be followed. If the operating agreement does not address the removal of members, then the default provisions under Texas law will apply.

The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

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Step 2: Consult with an Attorney

Given the potential legal and financial consequences of removing a member from Texas LLC, consulting with a Business Attorney in Texas before taking any action is advisable. A business attorney experienced in Texas LLC law can help you understand the legal requirements, ensure compliance, and avoid potential pitfalls.

The qualities of an excellent business attorney can make a significant difference in the success and growth of your business. Here are some key qualities to look for when choosing a business attorney in Texas:

  • Expertise in Texas Business Law: The best business attorney should have a deep understanding of federal, state, and local laws and regulations governing businesses in Texas. In terms of business laws and regulations, a business attorney should be familiar with forming of the Texas Certificate of Formation so that they will guide you in regulating the Texas Secretary of State and other laws that need to abide by.
  • Experience In Your Industry: An attorney with experience working with businesses in your industry will be better equipped to understand your company’s unique challenges and opportunities. They will be familiar with industry-specific regulations and can provide more targeted and relevant advice.
  • Strong Communication Skills: Effective communication is critical to a successful attorney-client relationship. A top-notch business attorney should be able to explain complex legal concepts in clear, easy-to-understand language and be responsive to your questions and concerns.
  • Proven Track Record: A great business attorney should have a history of successful client outcomes. They should be able to provide references or case studies that demonstrate their ability to achieve favorable results for businesses like yours.
  • Strategic Thinking: The best business attorney can think strategically, helping your company proactively address potential legal issues and identify opportunities for growth and success.
  • Commitment to Client Success: A truly exceptional attorney is not just focused on billable hours but genuinely committed to helping your business succeed. They should be willing to invest time and effort in understanding your company’s goals and work diligently to help you achieve them.

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Step 3: Obtain Consent of the Remaining Members

In most cases, removing a member from Texas LLC requires the consent of the remaining members. This is typically achieved through a vote of the members, with the required percentage of votes needed for approval varying based on Texas’s operating agreement or Texas law.

If the operating agreement does not specify the percentage of votes required, you should consult your business attorney or refer to the default provisions under Texas law.

Step 4: Prepare and Execute a Written Agreement

Once the required consent has been obtained, the next step is to draft a written agreement outlining the terms of the member’s removal. This agreement should include, but is not limited to:

  • The effective date of the removal
  • The reason for the removal
  • The method of calculating the member’s buyout or distribution of assets
  • Any other relevant terms or conditions

All members, including the departing member, should sign the agreement. This written agreement is evidence of the removal and can be used to update the LLC’s records and filings with the Texas Secretary of State.

Step 5: Update the Operating Agreement

After removing a member, Texas LLC’s operating agreement should be updated to reflect the change in membership. This may include amending the list of members, updating the ownership percentages, and revising any other relevant provisions. It is crucial to ensure that the updated operating agreement accurately reflects the current structure and governance of the LLC.

Suppose you wonder what the Texas operating agreement entails. It includes the following:

  • Name of the LLC: Your LLC’s name must include the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.” and comply with the Texas LLC naming requirements. In Texas, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application with the Texas Secretary of State to keep the name. The online name reservation fee costs $40, while the mail name reservation fee costs $40.
  • Principal Office Address: This is where your LLC’s primary business activities will be conducted.
  • Registered Agent Information: Your Registered Agent is a person or entity designated to receive legal documents on behalf of your LLC. The Registered Agent must have a physical street address in Texas. Choosing a reliable and responsible Registered Agent is essential, as failure to receive and respond to legal documents can seriously affect your business. You can serve as your Registered Agent, appoint a friend or family member, or hire a Professional Texas Registered Agent Services.
  • Purpose of the LLC: This section should describe the primary purpose of your LLC and the business activities it will engage in.
  • Duration of the LLC: You may choose to have your LLC exist for a specific period or continue indefinitely.

Step 6: Notify the Texas Secretary of State

Depending on the specific circumstances and requirements under Texas law, you may need to file a notice of the member’s removal with the Texas Secretary of State. This could involve filing the Amended Texas Certificate of Formation or other appropriate documents. 

The filing fee for amending your Certificate of Formation costs $300; however, it varies depending on your specific situation and the nature of the amendments. Consult your business attorney or refer to the Texas Secretary of State’s website for further guidance.

Step 7: Update Tax and Financial Records

Finally, updating the Texas LLC’s tax and financial records to reflect the member’s removal is essential. This may involve notifying the Internal Revenue Service (IRS) and the Texas Comptroller of Public Accounts and updating the bank accounts, bookkeeping, and other financial records. By profession, you can manage your finances using spreadsheets, accounting software, or becoming a CPA in Texas.

Is It Important to Update the Operating Agreement?

It is important to update the operating agreement when you remove a member from your Texas LLC. The operating agreement is a key document outlining your LLC’s rules, procedures, and ownership structure. When a member is removed, it is crucial to ensure that the updated operating agreement accurately reflects the current structure and governance of the LLC.

Updating the operating agreement after removing a member may include the following:

  • Amending the list of members to remove the departing member’s name
  • Updating the ownership percentages to reflect the change in membership
  • Revising any provisions related to the management, voting rights, and decision-making processes to account for the change in membership
  • Addressing any other relevant sections that may be affected by the member’s removal

By updating the operating agreement, you can maintain clear and accurate records of your LLC’s structure, which can be crucial for legal and financial reasons and the smooth operation and management of the business.

FAQs

How do I remove a member from an LLC in Texas?
You can remove a member from an LLC in Texas by following certain legal procedures.
Can I remove an LLC member in Texas without their consent?
Yes, you can remove an LLC member in Texas without their consent, but it will be subject to certain restrictions under the law.
What are the legal procedures for removing a member from an LLC in Texas?
The legal procedures for removing a member from an LLC in Texas involve complying with the laws governing the state and the LLC’s operating agreement.
Is there a fee for removing a member from an LLC in Texas?
There is no fee for removing a member from an LLC in Texas, except for any legal or administrative costs that may be involved.
Who is authorized to remove a member from an LLC in Texas?
The authorized party for removing a member from an LLC in Texas is the LLC’s operating agreement or the Texas laws.
Can a minority member dissolve an LLC in Texas?
A minority member cannot dissolve an LLC in Texas by themselves unless they have sufficient voting power.
What happens to the member’s interests when they are removed from an LLC in Texas?
The member’s interests in an LLC in Texas are forfeited when they are removed from the LLC.
Can an LLC with only one member be dissolved in Texas?
An LLC with only one member can be dissolved in Texas by the member.
Can a member be removed from an LLC in Texas with misconduct?
A member may be removed from an LLC in Texas with misconduct provided that it is in accordance with the operating agreement or under laws governing the state.
What is the difference between voluntary and involuntary removal of LLC members in Texas?
The voluntary removal of LLC members in Texas results from the consent of that member while involuntary removal, which comes about when they engage in misconduct or other factors outlined in the operating agreement or under laws of the state.
Can all members agree to remove one person?
Yes, all members can vote to remove a member from an LLC through the provisions of the operating agreement and the Texas state laws.
If there is a disagreement between the LLC members, can the state of Texas resolve it?
The state of Texas does not usually serve as the resolution negotiators for disagreements arising in LLCs as it’s often a civil matter and better solved by engaging private litigators or mediators.
What are the grounds for removing a member in Texas?
The grounds for removing a member in Texas can be found in the LLC operating agreement and state law provisions.
What should I do if I want to remove a member from an LLC in Texas?
The best course of action when one desires to remove a member from an LLC in Texas is to consult with an attorney to draft or review the operational agreement and then file the appropriate document with the state.
How long does it take to remove a member from an LLC in Texas?
The duration of time it takes to remove a member from an LLC in Texas will depend highly on any other parties, legal charges, and relevant facts.
What if the member I want to remove is also the CEO of the Texas LLC?
The CEO of the Texas LLC, as another member of the LLC, is subject to the same removal processes outlined in the operating agreement or bylaws for members taking action and must be complied with regardless of their existing role.
Can my employer remove me from an LLC that we formed together in Texas?
Your employer has the authority to remove you from the Texas LLC given that they’re listed in the agreement, their powers to control LLC members well outlined in the document while explicitly given enough voting member rights too, though unless caused by fault of the employee, it could be wrongful.
Do LLC members have liability protection when removing a hostile member?
LLC members may be protected when removing a hostile member as long as it’s done as outlined in the operating agreement or relevant laws an Texas statutes, furthermore protecting the members from liability of any harm caused in the process.
What is the Texas Business Organization Code?
The Texas Business Organization Code is the law that oversees the various business organizations in Texas.
Can a member assign their interests when a removal procedure is underway in Texas?
A member cannot assign their interests when removal is taking place unless the operating agreement sanctions such.
How is the LLC agreement reviewed in Texas?
The state typically does not control the review of LLC agreements, but they do oversee their formation.
Can we remove a member of our Texas LLC retroactively?
You can remove a member of a Texas LLC if it is agreed upon during your agreed agreement process and fits in the context of Texas Operating State Agreement.
What if I fail to follow the law in a removal proceeding?
If you fail to follow the law, a removal proceeding may become illegal and subject to lawsuits, imprisonment, and both civil and criminal costs.
Can the removed LLC member still have rights in the business?
The member may still have certain rights, such as receiving any compensation or benefits they had negotiated to receive in the agreement when the LLC was still together, but these rights will be limited to that date before termination unless other distinguishing features deciding such is mentioned in the agreement.
Can a court of law force a member to be removed?
The mode of removing a member will follow procedures outlined in the state of Texas LLC agreement, having the right strategy and expert legal advise is pivotal.
Can a dissolved LLC reinstated?
A dissolved LLC in Texas can be reinstated when the members desire so by legally accepting new agreements, complying with rules which may vary depending on th civil agreements, Back taxes, administrative fees may be required but varies.
Can we dissolve an LLC without removing members in Texas?
Texas state law requirements for liquidating dissolved LLCs outlines the standard that accounting, distribution, and report filings. Members are involved in the operating process of dissolving an LLC naturally.
How can I remove a member from my LLC for fraud in Texas?
Texas LLC code stipulates the right course of action to remove such a member centered around violations of provisions stated in the LLC’s bylaws and agreement of operating guidelines. You just have to file appropriate civil charges which experts can recommend accurately based on valid basis for the suit.
As a minority member, can I act against a disruptive majority member?
A single minority member does need the support shared by the majority of members of an LLC when the matter has a legal course correction process commonly advised by the respective acting attorney to expedite and resolve such disputes before they become threatening to members of the LLC.
Does removing a member require a cause?
Yes, removing a member in Texas requires a cause such as death or resignation.
Can a member be removed involuntarily?
An LLC member in Texas may be removed involuntarily by court order if the court finds that the member engaged in wrongful conduct.
What if the LLC does not have an operating agreement?
Texas has default laws that govern the removal of members in the absence of an operating agreement.
Can the remaining members vote to remove a member?
Yes, the remaining members of an LLC may vote to remove a member in Texas.
How many votes are required to remove a member?
The required vote to remove a member depends on the contents of the LLC’s Operating Agreement.
Can a member be removed unanimously?
Yes, an LLC member may be removed from an organization in Texas by unanimous agreement of the other members.
Can the LLC members buy out the interest of a removed member?
Yes, in Texas, LLC members have the right to purchase the interest of a removed member.
What if the member refuses to sell their interest?
If the member refuses to sell their interest in Texas, the LLC may hire a court-appointed appraiser to determine fair market values.
Is the buyout mandatory in Texas?
No, the LLC Operating Agreement will dictate the terminology required when a member leaves.
What if the LLC cannot afford to buy out the interest?
To avoid dissolution, the LLC can seek outside financing to complete the buyout.
Can the removed member receive any compensation?
A removed member in Texas may become entitled to equitable distribution of the LLC’s assets.
What is an orderly withdrawal agreement?
An agreement between members in case of withdrawal from an LLC, must include terms and conditions.
Must an orderly withdrawal agreement still be made after removing a member?
Yes, an update or an amendment may be made in the Operating Agreement as withdrawal of a member affects distributions.
Is it possible the withdrawing member seeks a personal lawsuit?
Yes, financial strife can arise along with several accusations resulting in a claim for a lawsuit.
Do Texas law governs voluntary withdrawal?
Yes, Texas law affects both voluntary and involuntary withdrawal.
Is fair dealing required?
If the LLC requires fair dealing conditions under the Operating Agreement, it must be abided while removing members as well.
Can the remaining members adjust to mismatch?
If an LLC member is not compatible with the rest of the people, the LLC may readjust to reduce any misunderstandings of the prior arrangements.
What is the process to remove a member for death?
Upon the illness or death of a Texas LLC member, their interest is vested in regular operation proceedings for a managing company.
Can the call for resignation set as a requirement?
An Operating Agreement could indicate the requirements of giving fair notice when a member decides to leave.
Does dissolution occur as soon as a member is removed or if the assest are fairly divided?
Unless otherwise defined, an LLC would avoid automatic termination by setting agreements as distribution plans when any intentional removal occurs.
When a single member LLC ceases by various actions, does their insurance remain valid?
In Texas single-member entities, will forfeit liability protection reform and for owners individually-held insurance agreements may not be final.
Are lawsuit claims applicable to remove members?
Under the `Limited Liability company, a lawsuit might also demand court concurrence to expunge a defendant from a business.
Can charges or indictments put a hold for removal procedure?
Until the duration any judicial matter that will greet, or obstruct each member in valid protection, no major apogee or operation can be made.
Does it matter if a Tax ID is changed or removed during the process?
Under federal law, the business will hold an independent existence and is covered concerning income tax identification accordance promptly.
How to achieve an aggregate shift?
The restructuring of LLC ownerships can occur through dissolvent operation agreements plan under general guidelines.
When can the new member come substituted?
Adding a new member can occur during the separation process only towards approvals from mainstream ownership as per the restructuring details proposed.
What applies to death, to access the person take others possessions inside LLC rightful custody?
Inventory, determination, and legally recognized methods of intercession for directed will and testament custody guidelines concerning forms of probates.
What happens when there is an adversary relationship between members?
Redeveloping agreements under diverse contentious basis exist and called management termination recognized under Texas law.

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Conclusion

Removing a member from an LLC in Texas can be complex and requires careful attention to detail. By following these steps and consulting with an experienced attorney, you can ensure that your LLC remains compliant with Texas law and continues to operate smoothly during this transition.

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