1. LLC Membership Withdrawal Facts
2. Withdrawing From an LLC

Updated October 30, 2020:

An LLC membership withdrawal agreement is a set of rules, normally included in a company's operating agreement, which provides details for how to handle a member leaving the company on a voluntary basis.

LLC Membership Withdrawal Facts

Limited liability company members who want to leave the company on a voluntary basis may find doing so to be a much more complicated process than just walking away from it. Leaving an LLC involves many steps, including:

  • Notifying the other members
  • Determining how assets will be handled
  • Adhering to withdrawal provisions set forth by the company

It is important to keep in mind that any loans or financial debt accruals that have been personally guaranteed by a member are not protected in the same way other assets may be by the company.

Limited liability companies are formed and governed by specific statutes that have been put in place by local state authorities. The specifics of these rules will vary from one state to another but most make allowances for LLC members to draft a document called an Operating Agreement. Operating Agreements should include the required procedures that a member must follow if he or she wants to withdraw from the company voluntarily. It is worth noting that, in most states, the rules outlined in the Operating Agreement will take precedence over those of local state statutes.

If there are no provisions regarding a withdrawal from the company in the LLC's Operating Agreement, however, many states provide a default withdrawal process. In some cases, a company may have to dissolve and be re-formed in the event that a member chooses to leave. This isn't the norm, however, and typical default statutes allow the company to remain intact.

When a member chooses to leave a limited liability company, the technical term is "withdrawal." The way in which a withdrawal is handled for a specific limited liability company will differ from one business to another, so it's important to consult the Operating Agreement to reference the rules that have been outlined. If your company's Operating Agreement doesn't include any such rules, you have two options:

  • Use your state's default procedures
  • Ask your fellow members to amend the Operating Agreement to include a withdrawal clause

When it comes to leaving an LLC, regardless of the specific rules that are in place, there are three primary methods:

  • Transferring your membership
  • Selling your membership
  • Death or incapacitation

Withdrawing From an LLC

In a limited liability company, owners are referred to as "members." LLC members may eventually decide they wish to withdraw from the company for one reason or another. Most states have similar laws in place regarding limited liability companies, including specific rules when it comes to leaving a company. Most limited liability companies have a formal document known as an Operating Agreement, which should include detailed rules pertaining to withdrawing from the company. This document is a contract to which every member of the company has agreed and includes information about:

  • How the company is to be run
  • The rights to which each member is entitled
  • Procedures for withdrawing from the company

Typically, these procedures will include the following:

  • Review the Operating Agreement for specific withdrawal requirements
  • Draft a formal, written notice that states your intention to withdraw and be sure to cite the provisions of the Operating Agreement that pertain to withdrawal
  • State any desires or demands regarding full payment for any investments you made in the company
  • Deliver your written notice to every member of the company
  • Draft or obtain an agreement that outlines how you plan to withdraw from the company

It is worth noting that this agreement should include details regarding when you plan to withdraw, how much you will be compensated, and how you'll receive said compensation.

  • Move for a vote among the other members to approve your proposed terms of withdrawal

Receive any compensation upon which you have agreed. At this point, the remaining members of the company will likely expect you to sign a release that confirms you have received the agreed upon compensation for your portion of ownership in the business.

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