How To Remove a Partner From an LLC

Removing a business partner from an LLC is one of the toughest situations a small company can face. Fortunately, most companies avoid legal battles by following proper procedures from the start. 

It’s best not to skip steps or take an informal attitude toward the removal, however, since it may increase the risk of disputes or legal challenges. This guide walks you through the general process. We’ll cover everything from starting the buyout conversation to filing the final paperwork with the state.

Negotiate a voluntary withdrawal or buyout agreement

A voluntary exit is often a practical place to start. It's far less complicated than forcing someone out. Legal disputes can become very costly depending on complexity and how they are resolved.

It’s recommended to start the conversation early and to keep it professional. You may bring a clear proposal to the table that covers:

• The value of the departing partner's ownership interest
• How and when the payment will be made
• Any transition timeline you both need to follow

Your LLC’s operating agreement is custom to your business.  Review yours carefully to make sure you know the rules that apply to removing a partner. 

Once you agree on terms, put everything in writing. Here are some of the documents you might use to complete the buyout:

• Use a Separation Agreement to cover ongoing duties, such as confidentiality and any non-compete terms. 
• A Membership Interest Purchase Agreement (MIPA) covers the transfer of the departing member’s ownership interest.  

Ask a lawyer about how to create important legal documents, and have them review anything in writing before you sign it.

If you can’t complete a voluntary buyout, then here are the basic steps to a forced buyout of an LLC Member.

Step 1: Review the LLC operating agreement for removal clauses

Your LLC operating agreement acts as your business's rulebook. Before taking any formal steps to remove a member, read it closely. If your agreement covers member removal, you’ll follow those rules. If not, you'll need to rely on your state's default LLC laws.

Pull up your agreement and look for these specific sections:

• Withdrawal provisions: Does the agreement allow voluntary withdrawal? Under what conditions and with how much notice?
• Buyout formulas: Does it specify how a departing member's ownership interest gets valued? A pre-agreed formula saves enormous time and conflict.
• Who funds the buyout: Your operating agreement may indicate who receives the first right of refusal to purchase a departing member’s interests or who pays – the individual members, or the LLC.
• Voting requirements: What threshold removes a member—simple majority, supermajority, or unanimous vote?
• Grounds for removal: Does the agreement list the specific things that can trigger involuntary removal?
• Dispute resolution: Does the agreement require mediation or arbitration before going to court?
• Notice requirements: How much advance notice must go out to all members before a removal vote?

If your LLC operating agreement doesn't cover these topics, your state's default LLC laws may apply instead. Some states follow frameworks such as the Revised Uniform Limited Liability Company Act (RULLCA). That's a law that provides a basic framework for removing a member when your agreement lacks details.

Step 2: Conduct a formal vote for involuntary removal

It’s important not to cut corners and follow the required procedures on the voting rules when resolving business disputes. That may give the removed member grounds to challenge the decision in court.  

Your operating agreement should have specific requirements about how a meeting of the members can be called. Follow these rules closely. When you have a meeting, record the vote in written form.

Voting thresholds depend on your operating agreement and state law. Some states default to a simple majority, while others may differ. Many agreements require a supermajority, which is defined as a percentage of membership interest. 

Step 3: Determine and pay the fair market value for the partner's share

Your LLC operating agreement may specify a particular valuation method. One common method is using the fair market value (FMV) of the business. FMV means the price a willing buyer would pay a willing seller when neither party faces pressure to complete the deal. The company may need to hire a certified appraiser to determine the business's FMV.

Accurately valuing the ownership interest can help reduce the risk of disputes or challenges. Underpaying or delaying payment gives the partner grounds to challenge the removal in court.

If your LLC operating agreement does not specify your valuation method or amount, a professional appraiser can consider your business's earnings and assets. They can also consider comparable sales. 

Once you agree on the value, follow these steps to complete the buyout:

● If not set out in the operating agreement, document the payment terms (whether a lump sum or scheduled payments) in a written agreement

● Sign the contracts

● Make the agreed payment

Keep records of every step. Clean documentation protects all LLC members if the removal is later challenged in court.

Now that your LLC membership has changed, you may have some additional steps to complete. Let’s discuss those now. 

File articles of amendment with the state

In some states, the removal is not considered fully effective until you notify the state. Filing articles of amendment with your Secretary of State updates the public record to reflect the change in LLC membership.

The filing process is straightforward. Most states let you file online through the Secretary of State's website. You usually need to include:

• Your LLC's name and state registration number
• The updated list of LLC members
• The effective date of the membership change
• An authorized member's signature
• If your departing member was also the registered agent for your LLC, you may need to revise that information as well
• The state filing fee (typically $25 to $150, depending on your state)

States use different names for this form, for example, "Certificate of Amendment", “Articles of Amendment” or "Statement of Change." Check your state's Secretary of State website to confirm the correct form and current fee. Understanding the steps to start an LLC in your state, from formation through major changes, helps you stay compliant at every stage.

Update internal business records and external accounts

Once the steps are done, update your business records. If a departing partner still has access to your bank accounts, licenses, or business systems, it may create operational or security concerns. Before removing a member, it’s a good idea to think about any impact to banking or licensing that will occur if a member is removed. Then, after the removal, go through this checklist to clean up your business records:

Banking and finances

• Notify all banks and financial institutions to revoke the departing partner's signing authority. They may require an updated operating agreement, or record of the minutes removing the member.
• Remove their access to accounts, credit lines, and payment systems.
• Update authorized signatories on all accounts.

IRS and tax records

• File Form 8822-B with the IRS if the LLC's responsible party has changed
• Update your LLC's tax filing information as necessary with the IRS and your state and local taxing authorities

Licenses, permits, and insurance

• Update all business licenses and permits that list the departing partner
• Notify your insurance broker and update your D&O and General Liability policies

Internal documents and digital access

• Execute a formal amendment to your operating agreement reflecting the new ownership structure
• Revoke the departing partner's access to business email, software, and social media accounts

Legal recourse when a partner refuses to leave

Sometimes, a partner refuses to leave even after a valid vote. When that happens, court involvement may become necessary. This is the most expensive and time-consuming path, but it is a real option when everything else fails. If your dispute reaches this stage, you’ll need help from a lawyer.

This is especially true if you’re trying to remove someone who has an equal share. If you co-own a business with one other person and split ownership 50-50, it’s incredibly difficult to remove them against their will. If you don’t have a very explicit and well-crafted Operating Agreement, it gets even harder.

Courts may, in certain circumstances, order a partner's removal on several grounds, including:

• Wrongful conduct that harms the business
• Material breach of contract or a fiduciary duty
• Conduct that makes continued business operation impractical
• Inability to perform their duties as a member

If you need to file a case, you'll submit a petition in state court and provide evidence supporting your grounds. Courts generally prefer to order a buyout rather than dissolve the business when it remains viable. 

Dissolving an LLC instead

Sometimes, removing a partner is not possible or practical. When that happens, dissolving the LLC is a legitimate alternative. Dissolution may be considered in situations such as: 

• The ownership dispute makes continued operation impractical
• The operating agreement specifically instructs for dissolution in case of a member dispute
• The operating agreement has no removal provisions and state law provides no clear path forward
• There are only two members and they are deadlocked, with neither willing to buy the other out

Dissolving an LLC means winding down the business entirely. You settle outstanding debts and fulfill existing contracts. Then the company distributes remaining assets to members based on ownership percentages. Finally, you’ll file articles of dissolution with your Secretary of State.

Get help with business legal matters with a LegalShield® Small Business Plan 

Removing a partner from an LLC involves complex legal and financial considerations that vary by state and operating agreement. While LegalShield® Small Business Plans don't cover LLC member disputes directly, having a lawyer review your operating agreement or business contracts before disputes arise can help you understand your options and obligations. A LegalShield Small Business Plan connects you with a provider law firm that can help with everyday business legal needs so that you're not starting from scratch when legal questions come up.

Frequently asked questions

Can I remove a partner without their consent?

In some cases, a partner may be removed without their consent, depending on the operating agreement and state law. Look at your operating agreement or consult your state's legal rules with a lawyer regarding removal rules. You need a formal member vote with proper notice and written documentation. If the partner contests the removal, you may need to file a court petition.

Do I have to dissolve the LLC to remove a partner?

No. Removal and dissolution are two separate processes. Most LLCs can remove a member without dissolving, provided the operating agreement or state law allows it. Dissolution ends the LLC as a registered entity with the state. Removal changes the membership structure.

What are the typical costs associated with partner removal?

Costs vary depending on how the removal unfolds. Voluntary buyouts include filing and legal fees, as well as paying out a share to the person being removed. If there’s a conflict, the expenses can increase considerably.

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