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Ask a Lawyer -- LLCs
LLC Question 121
Question: I am a member of an LLC in Texas. Two of our four members have not made the required capital contributions as specified by our signed operating agreement. They are noncompliant and refuse to withdraw from the LLC. These two members have left the business and are working elsewhere. Can we, the remaining two members who have made the required contributions, remove them from the LLC, and how do we officially do so? Are there special forms required, or do we just need a majority vote or resolution? The two remaining members represent a majority (73%) of the interest. Thanks so much for your help.
Response: The first place to start in answering this question is the text of the operating agreement. Does it provide a remedy for failure of a member to make the required capital contribution? Does the agreement provide a mechanism for removal of a member? I'll use the standard MedLawPlus.com® LLC operating agreement as an example. Section 3.1 sets forth the required initial capital contributions to the LLC. Section 7.4 sets forth the grounds and mechanics for removal. Also see Section 3.5(f)--supermajority vote required for removal of any member (66%+). Per the stated facts above, the remaining members have a supermajority and, thus, could remove the two members who have failed to make the required capital contribution to the LLC. Please note that although the Texas LLC Act states in Section 100.107 states that a member may not be removed, Section 101.052 states that the operating agreement can modify provisions of the LLC Act. Botton line: removal of an LLC member in Texas is prohibited unless there is an operating agreement in place that explicitly provides for removal.
What if the written operating agreement provides the amounts members are to contribute to the LLC but fails to explicitly state that LLC members can be removed or provide for another remedy? That's a tough question. My guess is that your remedy, under these facts, would be to sue the defaulting LLC member for breach of contract. Not a great option unless the operating agreement also provides for attorney fees for the prevailing party.
Submitted: 8-16-2007; Amy, TX
Response: 8-17-2007; JJR
User Comments
From: Joe
State:Missouri
Posted: 01/21/2008
Subject: withdrawal from a Texas LLC
Comment: Please see this prior post on the issue of member withdrawal from a Texas LLC.
From: Stephan
State:TX
Posted: 01/21/2008
Subject: Removing my self from an LLC.
Comment: I am a member of an LLC with 3 partners. I want to have myself removed from the business and requested this back in September of 2007. It was not agreed on by the other partners as they wanted me to remain, but I didn't want to because the direction the company was heading I "wasn't/am not" in total agreement with.
What's the best way to deal with this issue with having become a long ordeal in court.
PS: We were all squared away financially at the time of my initial request to be removed and I haven't contributed to the company since.
From: Amy
State:Texas
Posted: 08/17/2007
Subject: LLC
Comment: Thank you for your response. We do have provisions for removal upon a member's failure to contribute capital. We are just unsure how to execute the removal (proper forms, documentation, correspondence, etc) in order to keep it legal. Thanks again for the valuable information.
From: Leann
State:Texas
Posted: 08/09/2007
Subject:
Comment: Thank you for your response. There was no agreement formed and while I don't believe it would be easy to prove that the partner was soliciting our customers while actively involved in our LLC, I'm certain that this did take place. The partner's primary day to day role was to act as a liason between myself and all of our customers as basically an account executive or sales rep.
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