A Limited Liability Company, or “LLC,” is a specific type of Washington business entity. The main benefits of an LLC are that it provides business owners with liability protection, a flexible management structure, and certain tax advantages. While most LLCs enjoy longevity and success, some become difficult to manage and questions abound on how to remove a member from the entity. Let’s take a closer look.
What Does Your Operating Agreement Say?
A Washington LLC operating agreement is essentially a document that sets forth how your LLC should function. For example, it sets forth how your LLC should be managed and details a member’s initial contribution to the business. Most LLC’s file their operating agreements with the Secretary of State, but filing is not necessary.
If your LLC has an operating agreement in place, the agreement should set forth the process for removing a member – no matter whether removal is voluntary or involuntary. You should start with the agreement first when it comes to removal. Check to see if there are procedures in place to guide the process, then make sure to follow them.
What About When a Member Wants to Withdrawal?
Washington law (WA Rev. Code 25.15.131 (2022)) allows a member to voluntary withdraw from an LLC at any time. A member can even leave at will without approval or a vote by the other members. If a member does withdraw, it’s best practices to amend your operating agreement (and outline the LLC’s new membership structure) if an agreement is in place.
What Happens with Dissociation?
There are several events that can trigger “dissociation” from a limited liability company. The two most common are:
- A member’s death, and
- The transfer of all the member’s shares in the LLC to someone else.
Typically with dissociation, you can remove a member upon unanimous vote by all members of the LLC.
What About with an Involuntary Removal?
There are definitely times during the life of some LLCs where a member does not want to leave the business, but the remaining members want to remove the member. Here, there are two scenarios you can use to remove the member. The first is resorting to the courts and petitioning a court to remove the subject member.
The second route you can take is to dissolve the LLC. Dissolving the LLC will essentially terminate the business. Once terminated, the members that wish to continue to work together can form a new LLC. A limited liability company’s operating agreement will set forth the procedures for how to dissolve your company.
Should You Notify the State?
Yes. If you change the membership structure of your LLC, you should notify the Secretary of the State. The best way to do this is to file an amended annual report with the state.
Contact The McWilliams Law Group for Help
When you are ready to open a new business or take your current business to the next level, the lawyers at The McWilliams Law Group are here to help. We can help ensure that your operations provide you with the tax and liability protections that best fit your short- and long-term plans. Our attorneys work closely with business owners throughout Washington, providing individualized and strategic advice to help their businesses run smoothly. Contact us now and get the skilled business advice that you deserve.