Can You Get Out of an LLC Partnership? Here’s What You Should Know
An LLC, or limited liability company, is a business structure that provides limited liability protection to its owners. This means that the personal assets of the owners are protected in the event that the company faces legal action. LLCs are popular among small business owners because they are relatively easy to set up and offer a high level of protection from personal financial risk.
One of the key features of an LLC is that the owners are jointly and severally liable for the debts and actions of the company. This means that each owner is equally responsible for the financial stability of the LLC and can be held liable for any legal issues that may arise. This joint and several liability is one of the main reasons why partners may want to dissolve an LLC partnership.
If one partner wants to dissolve an LLC partnership, there are a few options available.
1) Buy out interest
The first option is to buy out the other partner’s interest in the company. This can be done through a variety of methods, such as negotiating a price for the buyout or taking out a loan to finance the purchase. Once the buyout is complete, the partner who purchased the other partner’s interest will be the sole owner of the LLC.
For example, imagine that John and Jane are partners in an LLC. John decides that he wants to dissolve the partnership and buy Jane’s interest in the company. They agree on a price of $100,000 for the buyout. John takes out a loan for $100,000 and uses the money to purchase Jane’s interest in the company. He is now the sole owner of the LLC.
2) Sell interest to a third party
Another option is to sell the partner’s interest in the company to a third party. This can be done through a variety of methods, such as negotiating a price for the sale or holding an auction. Once the sale is complete, the partner who sold their interest will no longer be a part of the LLC.
Additionally, the partner who buys the interest in the company will become a part of the LLC and will be subject to the same joint and several liabilities as the other partners.
For example, imagine that John and Jane are partners in an LLC. John decides that he wants to dissolve the partnership and sell Jane’s interest in the company. They agree on a price of $100,000 for the sale. John sells Jane’s interest in the company to a third party for $100,000. Jane is no longer a part of the LLC, and the third party is now a part of the LLC and subject to joint and several liabilities. Also, if you were to remove an LLC member in Texas, for example, keep in mind that you’ll need to file a certificate of termination with the Texas Secretary of State. On the other hand, if you’re based in California, then you’ll file a certificate of dissolution with the California Secretary of State instead.
3) Dissolve the LLC
If both partners agree, they can dissolve the LLC entirely. This means that the company will be wound up and all of its assets will be sold off. The proceeds from the sale of the assets will be divided among the partners according to their ownership stake in the company.
Plus, any debts or liabilities of the company will be divided among the partners according to their ownership stake in the company.
4) File for bankruptcy
If the LLC is facing financial hardship, the partners may decide to file for bankruptcy. This will allow the LLC to restructure its debts and liabilities and may provide some relief from creditors.
However, it is important to note that filing for bankruptcy will have a negative impact on the personal credit of the partners.
Not only that but the LLC will be dissolved and all of its assets will be sold off to repay creditors.
Overall, the options available to partners looking to dissolve an LLC partnership are fairly limited. But by understanding the implications of each option, partners can make a decision that is best for them and their business. The bottom line is that if one partner wants out of an LLC, the best thing to do is to negotiate a buyout with the other partner. This will allow the LLC to remain in business and avoid any potential legal issues. If a buyout is not possible, then the next best option is to file for bankruptcy.