LLC Withdrawal

LLC Withdrawal

I formed an LLC partnership in STATE X with my business partner last year. While we have drafts, we do not actually have a signed operating agreement. At this time I would like to withdraw from the LLC but my partner is not in agreement. What am I legally bound to do for withdrawal in terms of putting something in writing?


If the operating agreement wasn't signed it would seem that generally the provisions of your state's limited liability company ("LLC") law would apply. You would have to have your corporate attorney review the statute and determine what rights you have to withdraw. The state law may address whether you need the approval of other members, what you are entitled to get paid for your interest, etc. Be careful to fully understand your rights because under many state LLC statutes what you are entitled to can vary from what you might think. You also should have your business attorney address the issue as to whether there is any significance to the unsigned operating agreement. It might be, depending on state law and your desire for compensation, that the process involves your merely giving written notice to the other members, but DON'T assume that without going through all the variables with your attorney. Ancillary issues should also be carefully evaluated. For example, if the LLC has taken out a bank loan or signed a lease, a change in the LLC membership, could cause a lender to call the loan or the lease to be in default. Code Section 708 provides for a termination of a partnership (presumably your LLC is taxed as a partnership for tax purposes, but confirm with your CPA). Will your withdrawal cause a technical termination of the partnership for tax purposes? If there is only one member, then your withdrawal may cause a change in the LLC from being taxed as a partnership to being treated as a disregarded entity for income tax purposes. Have you considered the tax impact of this on the remaining member (there are several IRS rulings that address this issue). Review all of the consequences, and how they may impact you with your accountant and business or litigation attorney before you exercise any right under state law.

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