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Ask a Lawyer -- LLCs
LLC Question 122
Question: I created an LLC in Texas with a person who was going to be my partner. I filed the Articles of Organization with him on as a member, but he never signed the Operating Agreement. Before we began doing business, we mutually agreed that he would not be part of the company. He was pursuing other interests. I would like to start doing business under this LLC, but how do i take him off? Should i just dissolve and re-do all the paperwork under another LLC, or can i just do business without him? I know i can amend the Articles for a name change, but can i remove him as a member?
Response: I previously dealt with the issue of member withdrawal from a Texas LLC in response to Question 77. Issue: did the other member of your LLC ever formally become a member? If he was never a member, then there is no need for him to withdraw. I see nothing in the Texas LLC Act that specifically address this issue. From your standpoint, the easiest thing to do is to treat the situation as one where your expected partner never formalized his agreement to become a member of the LLC. I assume the certification of formation for the LLC filed with the Texas Secretary of State's office lists both yourself and the purported partner. If the LLC was to have managers, the managers would be listed on the certificate. But if the LLC is managed by its members, then all the members are listed. If your purported partner is listed as a member in the certificate, then I believe you should amend the LLC certificate of formation. This is done with form 406. Here is the contract email address for the Texas Secretary of State's office.
Worst case scenario would be that your purported partner needs to formally withdraw from the LLC. In this case, an LLC operating agreement is necessary. Thus, you both need to sign an operating agreement and then he turns around and withdraws. You would want to compensation for withdrawal to be something like all contributions to the LLC. If he made no contributions, then his withdrawal compensation is zero. Best to resolve this situation before business operations of the LLC commence as the problem only grows from that point forward.
Submitted: 8-1-2007; Ezra, TX
Response: 8-13-2007; JJR
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