One of the benefits of the limited liability company is the ability of its members to decide how the business will be owned and managed through a written operating agreement. Georgia law gives the operating agreement the controlling authority over member withdrawal procedures, which can include prohibiting member withdrawals altogether. If there is no written operating agreement, however, the default provisions of the Georgia Limited Liability Company Act control withdrawals. Best management practices advise members to adopt an operating agreement with member buyout provisions at the time the LLC is formed.
Follow the member withdrawal procedures required by the LLC's written operating agreement, if one exists. Georgia law establishes that a written operating agreement controls member withdrawals, without exception. Refer directly to the agreement. You are bound by its provisions, even if the agreement specifies that members cannot withdraw.
Provide at least 30 days written notice of withdrawal pursuant to the default provisions of Georgia law if a written operating agreement does not exist or if an existing agreement does not address withdrawal procedures. This notice should be provided to the other LLC members.
Establish a value for the withdrawing member's interest. An operating agreement that conforms to best practices will have owner buyout provisions, sometimes known as buy-sell provisions, that set the value of a withdrawing member's interest in advance. If no agreement exists, the members should set a fair value by negotiation. If a negotiated value cannot be reached, the default provisions of Georgia law control. The LLC should then make an offer of payment pursuant to the Limited Liability Company Act. The withdrawing member can exercise dissenter's rights under the statute if he is unhappy with the offer, leaving it to the court to decide the matter.
Sell or assign the withdrawing member's interest to the LLC. This interest can subsequently be redistributed to existing members or sold to a new member. Execute a purchase agreement to memorialize the terms transaction.
Record the transaction in the company books and records. LLCs are required to keep accurate record of ownership changes for legal and tax purposes. Update the ownership ledger and capital accounts with the date the withdrawing member left the company and terms of the ownership interest buyback. This information enables the company to determine owner liability if the company were to be sued regarding a matter that had a genesis when the withdrawing member was still active and to determine ownership basis and appreciation for tax purposes.
- Georgia Code: Section 14-11-601 -- Events of Dissociation
- Turnaround Management Association: Limited Liability Companies: Important Exit Considerations; Wendell H. Adair, Jr., et. al; September 1996
- Small Business Law Firms: Buy/Sell Agreements: Business Exit Strategy
- Citizen Media Law Project: LLC Records
- FindLaw: Buyout Agreements: Changing LLC Ownership
- SBA.gov: Limited Liability Company (LLC)
Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995. Her online articles specialize in legal, business and finance topics. She holds a Juris Doctor and a Bachelor of Science in business administration with a minor in finance.