When a business partner decides to leave an LLC, you may worry about what happens to the company you have worked hard to build. Without clear terms in your company agreement, a departure can lead to disputes over ownership, payment and who gets to make business decisions. Planning for this possibility early helps you understand your options if a member decides to leave.
Here are the key provisions to consider.
Withdrawal procedures
Your company agreement should explain when and how a member may leave the LLC. Under Section 101.107 of the Texas Business Organizations Code, a member generally cannot withdraw or be expelled unless the agreement provides otherwise. Specify the permitted reasons for leaving and any conditions the departing member must meet.
Notice and approval requirements
Set clear rules for notifying the LLC about a planned departure. For example, you could require written notice within a specified period and explain whether the remaining members must approve the withdrawal. These terms help everyone understand the process and prepare for changes in ownership or management.
Buyout terms and valuation
Your agreement should explain whether the LLC or its remaining members must buy the departing member’s ownership interest and how they will calculate the price. You could use an agreed formula or require an independent appraisal. Also, specify whether the buyer can pay in installments and when payment must occur.
Rights after departure
Clarify which rights end when a member leaves and which obligations continue. Address the member’s voting and management authority, any remaining right to receive distributions and duties such as protecting confidential business information. If the departing member keeps an economic interest, explain what that means for future payments and involvement in the company.
Review your exit terms before a departure
Clear withdrawal rules, notice requirements, buyout terms and post-departure rights can help prevent disagreements when an LLC member leaves. Review your company agreement with a Texas business attorney to identify gaps, confirm that the provisions comply with state law and decide how to handle an ownership transition before a dispute arises.