Q: My company was created with two members. Now I want to change it to a single member. What is the process to do this myself?
Thank you to a customer from Tennessee for that excellent question! While it is possible to remove a member from an LLC in the Volunteer State, it can be tricky, especially if the member is leaving involuntarily. Your LLC needs a rock-solid operating agreement to handle that kind of breakup without judicial help. This guide will show you what you need to know about removing a member from your Tennessee LLC.
How can a member be removed from a TN LLC?
Per TN Code § 48-249-503, members can leave a Tennessee LLC for a number of reasons, including, but not limited to:
- Giving written notice of their intention to withdraw.
- Determination by a judge.
- Termination due to causes specified in the LLC’s operating agreement or other documents.
With rules for removal listed in an operating agreement, a member may be ejected from the LLC when the circumstances match the agreement’s criteria. Without specific instructions in your operating agreement, your LLC is subject to Tennessee’s laws—and under those, there’s no way to force a member’s exit without a judge’s decision.
What is the process to involuntarily remove a member from an LLC?
In most cases, LLC members leave through mutual agreement, but if the split is contested, another member (or the LLC as a whole) must appeal to a court to get an opposing member removed. In those cases, a member may be removed if the judge finds that they:
- Affected the LLC’s business with misconduct.
- Deliberately or repeatedly breached the terms of the LLC’s documents or duties.
- Have become incapable of performing duties under the terms of the LLC’s documents.
What should be done with an ex-member’s interest in a Tennessee LLC?
Your operating agreement should have terms for distributing an outgoing member’s interest—including instructions for whether the departing member must be bought out, how their share and interest is priced and can be purchased, and if any other circumstances may force a buyout.
What paperwork must be updated after a Tennessee LLC loses a member?
A member exiting your LLC means you’ll need to do a little work to update your LLC’s documents and filings. At a minimum, you’ll need to correct a piece of information on your annual report. You may also need to change your internal operating agreement and some of your LLC’s information with the IRS.
Annual Report
Once a member leaves your LLC, you will need to let the Tennessee Secretary of State’s office know about the change in membership. You don’t need to do this until you file your LLC’s annual report. Just update the number of members given on the form (Tennessee does not require you to list specific member names on your annual report).
Operating Agreement
If removing a member leaves you as your LLC’s sole member, you will want to correct your operating agreement. Your operating agreement is an internal document, so you won’t need to file it with the state, but you should still update it to reflect the change in how your LLC is organized. Northwest provides a template for single-member LLC operating agreements.
IRS Forms
If your company becomes a single-member LLC after removing a member, you will also need to update the LLC’s tax election with the IRS. Single-member LLCs are taxed under different standards than multi-member LLCs are. You will need to file Entity Classification Election Form 8832 in order to notify the IRS of the change.
It may be that the member who left the LLC was listed as the Responsible Party for the company when the LLC applied for an Employer Identification Number with the IRS. If so, you’ll need to file Form 8822-B with a new member’s information as the Responsible Party.
Lastly, if your LLC was being taxed as a partnership and now has a single member, you will also need to obtain a new EIN for the business.