Member Resignation from an LLC

by George Lawrence J.D.; Updated September 26, 2017

Limited liability companies, LLCs, are business structures that have some of the features of a partnership and some of the features of a corporation, according to The Free Dictionary. The members of the LLC are each entitled to a share of the management duties and the profits from the LLC -- like a general partnership. Like a corporation, the members are not personally liable for the debts and obligations of the business. Member resignation is generally governed by an operating agreement.

Operating Agreement

The operating agreement is a contract between the members of the LLC; it sets forth the rights, responsibilities and duties of the members. Generally, when a member wants to resign from the business, she must follow the provisions in the operating agreement. The operating agreement may require the member to give a certain amount of notice, such as 30 days. The agreement should address other issues associated with the resignation, such as how much money the member is entitled to and what role the member can take in the operation of the business in the period prior to his last day with the company.

Wrongful Withdrawal

In certain cases, the resignation may be considered wrongful. For example, if the operating agreement requires the member to notify the other LLC members and to give the business at least 30 days, and the resigning member fails to do so, the business could hold the member liable for any damages it incurred, such as costs associated with replacing the member. In Nevada, for example, unless the operating agreement states otherwise, if resignation is wrongful, the LLC member is still entitled to the fair market value of his ownership interest in the business, but it can be reduced by all damages sustained by the LLC as a result of the wrongful resignation.

Notification

Members of an LLC are agents of that business, according to The Free Dictionary. As an agent, a member has the authority to bind the business to contacts and other business transactions. When a member leaves the business, notice of that resignation should be given to state and local authorities, as well as the business’s clients and customers so that the resigning member cannot continue to act as if she is an agent of the business.

Other Issues

When entrepreneurs set out to begin a new venture, it is common for them to avoid addressing potential negative issues, such as member resignation. It is important to carefully address and consider the specifics associated with a member resignation and to put those specifics into the operating agreement. If the operating agreement is silent, state laws governing LLCs apply and the default rules may not apply in a way the business would like. Readers should speak to a business attorney before proceeding on their own.

About the Author

Based in Traverse City, Mich., George Lawrence has been writing professionally since 2009. His work primarily appears on various websites. An avid outdoorsman, Lawrence holds Bachelor of Arts degrees in both criminal justice and English from Michigan State University, as well as a Juris Doctor from the Thomas M. Cooley Law School, where he graduated with honors.