We're a small LLC with three members and one is planning to leave. The operating agreement says dissolution can happen if a member leaves, but I really don't want to shut everything down. Is there any way to keep the company going without dissolving? Has anyone dealt with this?
Partnership
I don't want to dissolve the company just because a partner leaves
Without seeing your operating agreement, my first thought is whether the remaining members can buy out the leaving partner's interest. We did that with a member who left and just filed an amendment to remove them. But if the agreement specifically says a departure triggers dissolution, you might need a formal vote to override or amend that clause. We had to get a lawyer to redraft ours.
Check if your state has a default rule that lets the remaining members continue. Some states do, but if the operating agreement says otherwise, that controls. Did you talk to the leaving member yet?
Yes, we've talked. He's fine with continuing if we can work out a buyout. The main issue is figuring out the right process so we don't accidentally dissolve. The agreement is vague—it says "may be dissolved" rather than "shall be dissolved." Does that make a difference
"May" versus "shall" definitely matters in legal language. If it's permissive, you likely have more flexibility to continue. But I'm not a lawyer. I'd still get one to review and draft a resolution or amendment.
We went through this two years ago. Three members, one left. We had a buyout agreement and filed articles of amendment with the state. Also updated the operating agreement to reflect two members. Cost us around $1,500 total with an attorney. Worth every penny.
One thing to watch: if the leaving member is also a manager, you may need to update the management structure and any bank authorizations. We forgot about the bank and had a mess with checks.
Can you just form a new LLC with the remaining members and transfer the assets? That might be simpler than fighting the dissolution clause.
Transferring assets to a new LLC would be complicated—we have a lease and a couple of contracts that require notice. Plus I'd rather not start over wityh the brand. The buyout route seems cleaner if we can get the paperwork right.
Also check your state's LLC act. In some states, a member's dissociation doesn't automatically dissolve the LLC unless the operating agreement says so. But if your agreement has a dissolution clause, you need to amend it. You'll want a written consent from all members including the leaving one one to amend the agreement and waive dissolution.
Bramblewood, did you do a straight buyout or an installment plan? We're looking at a similar situation and trying to figure out financing.
Installment over 18 months. We had a promissory note and a security agreement. The leaving member wanted to be done with it but we couldn't pay lump sum. He agreed after we offered a small interest rate.
One more thing: make sure you file a certificate of amendment or articles of amendment with the secretary of state. If you don't, the old member might still show up as a member in the state records, which can cause confusion later.
Thanks for all the input. I'm going to pull our operating agreement and look for the exact dissolution language, then get a consultation with a business attorney. The buyout and amendment path seems like the way to go, but I'll confirm the state filing requirements too.