Fact Checked by Editorial Staff 
Membership changes within a limited liability company (LLC) can occur for various reasons, including the addition of new investors, the departure of existing members, internal restructuring, disputes, or the passing of a member. Because ownership affects voting rights, management authority, and tax responsibilities, it is important to follow the LLC’s governing documents and applicable state law when making these changes. This guide explains common challenges, required documentation, and steps business owners should understand before updating membership information.
- LLC membership changes must follow the Articles of Organization and the Operating Agreement.
- When documents are silent, state law (often base UULCA) provides default procedures.
- Formal documentation and accurate recordkeeping are essential.
- Some states require amendments for manager and member updates.
- Judicial removal is possible but considered a last resort.
Change in LLC Members Can Be a Complicated Process
Usually, an LLC can be member-managed or manager-managed. In either case, making structural changes, such as removing or adding members, can be complicated. Membership changes often involve legal, financial, and procedural steps. Understanding why complications arise helps prevent delays and disputes.
Operating Agreements May Lack Specific Procedures
Operating Agreements and Articles of Organization typically outline how members are added or removed; however, many lack detailed voting requirements, buyout procedures, or valuation methods. This can lead to uncertainty, disagreements, and delays.
State Statutory “Default Rules” When Documents Are Silent
If governing documents do not outline a process, state law becomes the controlling authority. Many states follow versions of the Uniform Limited Liability Company Act (ULLCA), which provide default procedures for governance, amendments, and dissolution.
Involuntary Removal May Involve Disputes
When a member does not wish to withdraw, disputes may arise involving financial interest, performance, or compliance with the Operating Agreement. These issues often require careful documentation and may lead to judicial involvement when negotiations fail.
How to Add or Remove a Member From an LLC
Adding or removing members from an LLC might be hectic, but not difficult. There are a few steps to follow, and anyone can easily complete them. Below are the typical steps LLCs must follow when updating ownership roles or adding or removing members.
1. Review the Articles of Organization and Operating Agreement
These documents determine:
- Whether member information appears on state filings
- Voting requirements
- Buyout and valuation procedures
- Conditions for removal
- Steps for admitting new members
If instructions are provided, the LLC must follow them as written.
2. Document the Change Formally
LLCs should maintain accurate internal records, including:
- Registration or admission letters
- Membership transfer or buyout agreements
- Updated membership interest schedules
- Resolutions approving the change
These documents should be stored with the LLC’s permanent company records.
3. File an Amendment if Required by Your State
Some states require amendments to update:
- Member-managed vs. manager-managed status
- Members or managers listed on public filings
- Governance structure
Amendment forms and instructions are available on each Secretary of State’s official website.
4. Follow Statutory Procedure When Documents Do Not Address Removal
If the Operating Agreement does not outline a removal process, state law governs. Courts may remove a member when:
- The conduct harms the business
- The violation of the terms of the Operating Agreements
- It becomes impracticable to continue operating with them involved
Alternative Solution
Sometimes membership changes cannot be resolved through standard procedures, especially when disagreements arise or when documents do not clearly explain the process. In these situations, alternative approaches can help the LLC move forward while reducing conflict and delays.
Negotiated Buyout
A voluntary buyout agreement is often the simplest solution. It reduces conflict and avoids the costs and delays associated with legal action.
Judicial Options
When negotiation fails, members may seek court intervention for the removal of the offending member. In rare situations, the court may order dissolution and reformation of the LCC.
IRS and Tax Considerations
Membership changes may affect IRS records, including responsible-party information. These updates must be submitted separately to the Internal Revenue Service.
Conclusion
Membership changes must be handled in accordance with the LLC’s governing documents and applicable state laws and regulations. Proper documentation, correct filings, and careful record-keeping help ensure compliance and prevent operational issues. When conflicts arise, legal guidance may be necessary to determine the appropriate course of action.