Withdrawing from an LLC the right way is key
The reasons professionals establish LLCs, or limited liability companies, are as varied and complex as the reasons people withdraw from the resulting partnerships. Many entrepreneurs form an LLC for the benefits such as liability protection. At the same time, breakups of LLCs are common, and many motivations can drive a partner to seek a way out. Sometimes, it's a mismatch of visions for the enterprise. Other times, it's an unequal division of labor where perhaps one of the partners feels they're doing the lion's share of work for the company. And in many cases, it's simply time to move on to other opportunities, whether it's a new professional role, retirement or the desire to start a business of their own.
Steps to take to withdraw from your LLC partnership
Whatever the reason, when it's time to break up with a business partner in an LLC, it's best to understand what needs to be done from a business and legal perspective. Consulting a trusted attorney can ensure the process goes as smoothly as possible, which is an important consideration when personal and professional relationships are at stake as well as assets. Here's an overview of the steps you may wish to take to withdraw from an LLC.
1. Review your operating agreement.
The operating agreement, probably established when you formed your LLC, will likely have guidelines you agreed upon for dissolving a partnership or withdrawing from it. (In some cases, there are more than two partners, and the operating agreement may have provisions for continuing the LLC without one of the partners.) Operating agreements may specify, for example, the stake in the business that you're entitled to. The best approach is to be prepared; if you are establishing an LLC and are interested in putting an operating agreement into place, our attorneys can help ensure the agreement is comprehensive and addresses legal concerns and potential eventualities, including partner withdrawal from the LLC.
2. Look to state statutes.
If you do not have an operating agreement, Wisconsin state law addresses LLC withdrawal and dissolution. Statute 183.0802 addresses events of dissociation, with particulars for the reasons for withdrawal. And statute 183.0901 addresses dissolution of an LLC. The statutes consider asset distribution, legal claims against an LLC and other issues that may or may not apply. Understandably, statutes, by their nature, are detailed and can be confusing. It's wise to consult with an attorney to help you know your rights and protect your interests.
3. Make it official.
Whether you are abiding by an operating agreement or following state statutes, you will likely need to formally withdraw from the LLC via written notice. In this letter, it's common for the withdrawing member to request the LLC vote on your withdrawal and distribution of your share of the assets.
4. Receive your share of the assets.
Once the partners of the LLC vote and your withdrawal is approved, you should receive the income and assets you're entitled to under your partnership agreement or state statutes. This may require an audit to determine what is rightfully yours. Upon receipt, you may be asked to sign a release form.
5. File the legal paperwork.
After withdrawal or dissolution of an LLC, you'll need to complete some paperwork. The requirements will differ based on whether you are withdrawing from an LLC that will continue to operate with remaining partners (requiring notification of the change in partners) or seeking dissolution of the LLC. The articles of dissolution for a Wisconsin LLC must be filed with the Department of Financial Institutions: Division of Corporate and Consumer Services.
Trusted and experienced lawyers for legal issues impacting LLCs
As with any complex legal matter, having an experienced attorney on your side is key to protecting your interests and understanding your rights. Contact us to learn more about how we can help you withdraw from or dissolve an LLC partnership.
By Justin Peterson, Business Law Attorney at Johns, Flaherty & Collins, SC. For more about forming or withdrawing from an LLC, contact him at 608-784-5678.