Taylor Legal Blog

What Do We Do If An LLC Owner Wants Out of the LLC? [VIDEO]

Posted by Katherine L. Taylor, Attorney and CPA, Chief Problem SolverJan 16, 20230 Comments

{3 minutes to read}  Are you in an LLC as an owner with at least one other owner who wants to get out of the LLC? I'm Katherine Taylor, the lawyer for business owners, and I'm going to tell you the five steps that you need to consider when this situation arises.

If you're an owner of a business that was formed as an LLC, you may encounter a situation where one or more of the other members want to exit the LLC. What do you do when that happens?

1. You need to review any operating agreement that was drafted and signed by all the members. (If you don't have an operating agreement, then, of course, you can't review it. We'll get to that in a minute.) 

2. Review the state law relating to LLCs and the withdrawal of members. You have to comply with both your operating agreement and state law when the person who is getting out transfers their interest either back to the LLC or one of the other members. 

3. You need to decide how much, if anything, the person who is exiting is going to get paid for transferring their interest. Many times, businesses are not worth a whole lot on the market. Owners throughout the course and the life of the business have recouped profits in the form of distributions, but their actual interest might not be worth anything to sell back to the remaining owner(s). Or it might be worth a whole lot. That's what needs to be decided among all of the owners — what amount is going to be paid to the existing owner(s). 

4. Talk to the company's CPA. You need to figure out what the tax ramifications of this transaction are going to be because there may be ways that you can structure the transaction to make it much more acceptable from a tax basis for either the remaining members or the person exiting.

5. This is really important — have a lawyer draft the transfer documents. Do not try to do this yourself. 

If you don't already have an operating agreement, have a lawyer draft one for you. If you already have an operating agreement, once one or more members exit the LLC, you need to revise that operating agreement. 

These are all things that Taylor Legal can help you with. www.taylorlegal.com


5850 Waterloo Rd

Suite 140

Columbia, MD21045


443-420-4075 (fax)