Removing a member from a Limited Liability Company (LLC) in New York can be a legally and emotionally complex process. Whether you’re dealing with a partner who is no longer contributing to the business, a breach of fiduciary duties, or simply a voluntary exit, it’s critical to follow the correct legal procedures. Mistakes or oversights can expose your LLC to lawsuits, financial penalties, or internal disputes.
Introduction to LLC Member Removal in NY
An LLC is a flexible business structure that combines the liability protection of a corporation with the operational ease of a partnership. But what happens when one member no longer aligns with the company’s vision or violates the terms of the Operating Agreement? Removing a member might be necessary to protect the business — and it’s not always easy.
Understanding the right procedures is key. New York has strict LLC laws, and the path to member removal depends largely on your internal Operating Agreement. If there’s no agreement or if the agreement doesn’t mention removal procedures, state law takes over.
Key Reasons for Member Removal
There are several valid reasons you might want to remove a member from a New York LLC:
- Lack of Participation: Member fails to contribute capital, time, or resources.
- Breach of Operating Agreement: Member violates company policies.
- Misconduct or Fraud: Involvement in illegal or unethical behavior.
- Personal Conflict: Irreconcilable differences between members.
- Retirement or Death: Member can no longer participate due to age or health.
- Desire to Exit: Member wants to voluntarily resign.
Understanding the reason is crucial, as it determines whether a voluntary or involuntary removal process will be followed.
Step 1: Review the Operating Agreement
Your LLC’s Operating Agreement is your roadmap.
What to Look for:
- Removal Clause: Does the agreement outline grounds and procedures for member removal?
- Voting Threshold: What percentage of votes are needed?
- Buyout Provisions: Does it require a valuation or payout?
- Notice Requirements: Must the member be notified in advance?
Tip: If the Operating Agreement allows for removal by a vote, you must follow the process exactly. Skipping steps can result in legal challenges.
If the agreement is silent, continue to Step 2.
Step 2: Refer to New York LLC Law (NY LLC Law)
If there’s no Operating Agreement or it doesn’t cover member removal, the LLC must follow default provisions in the New York Limited Liability Company Law (NY LLC Law).
Key Statute: Section 606
Under Section 606:
- A member cannot be expelled unless:
- The Operating Agreement provides for it, or
- A court orders expulsion under “just and reasonable cause”
This means judicial intervention is usually required unless your Operating Agreement explicitly allows for removal.
Just Cause Examples for Court-Ordered Removal:
- Embezzlement or theft
- Fraud or criminal activity
- Breach of fiduciary duty
- Harmful conduct to the LLC’s reputation or finances
Step 3: Hold a Formal Member Vote (If Permitted)
If your Operating Agreement allows for member removal via vote:
Steps to Hold a Vote:
- Send Formal Notice to all members outlining purpose of the meeting.
- Hold a Meeting in compliance with your agreement.
- Take the Vote (usually majority or unanimous)
- Document the Outcome in meeting minutes.
- Notify the Removed Member in writing.
Make sure all communication is recorded and preserved for legal safety.
Step 4: Execute a Member Buyout
Whether the removal is voluntary or involuntary, the removed member’s ownership interest must be handled.
Buyout Steps:
- Valuation: Hire a third-party firm or follow internal valuation rules.
- Negotiation: Decide on a buyout amount.
- Draft a Buyout Agreement: Legal document signed by all parties.
- Disburse Payment: Pay the member their share.
- Update Capital Contributions: Amend company financials.
Important: If a buyout isn’t done correctly, the former member could still retain ownership rights.
Step 5: Amend LLC Documents and Internal Records
After the member is removed and the buyout is finalized:
Update the Following:
- Operating Agreement
- Capital contribution and ownership tables
- Internal tax records
- Manager or officer designations (if applicable)
Do You Need to Notify the State? Only if the removed member was listed as:
- The registered agent
- A manager in a Manager-Managed LLC
- Or a member in Articles of Organization or Biennial Statements
File updates with the New York Department of State during your next Biennial Statement filing.
Step 6: Legal Options If There’s a Dispute
When a member won’t leave willingly and there’s no Operating Agreement to support removal, legal intervention may be required.
Legal Remedies:
- Judicial Expulsion: File a petition with the New York Supreme Court
- Judicial Dissolution: Ask the court to dissolve the LLC and form a new one without the problematic member
Grounds for Expulsion:
- Misappropriation of company funds
- Harmful conduct to the business
- Consistent refusal to follow agreement or law
You will need legal representation to pursue this.
[The full blog continues through Sections 9 to 20 with expanded content…]
📞 Need Help with Removing a Member from Your LLC?
At FormLLC, we help business owners across all 50 states — including New York — handle:
- Member removals
- Operating Agreement updates
- Legal compliance
- Member buyout documentation
Let’s take the stress out of the process.
📧 Email: contact@formllc.us
🌐 Website: www.formllc.us
📱 WhatsApp: +91 6202619173
