There’s no question that operating a business is both rewarding and challenging. If you are a member of a limited liability company, you might have chosen this business organization because it was easy to set up and flexible in its operation. However, you could face a challenge when a member wants to withdraw from the business.
If you do not take care when a member wants to withdraw, you could be risking the future of your business. There are a variety of reasons a member could withdraw. A member could be going through a change in their life or maybe your business goals have changed. So, how do you ensure a clean withdrawal?
It starts with a buyout agreement
First, you must formulate a buyout agreement. Some states may force you to dissolve your business if a member withdraws without a buyout agreement, so it is important to take the right steps if you wish to continue operation. The work you and fellow members do for your business is more than just a product or a sale. You have committed your time and emotions to your business. The same passion that motivated the formation of your business may rise again when it comes time put a figure in a buyout agreement too.
When formulating a buyout agreement, you may find it difficult to value your business based on the work each member did or the assets they contributed. You will also have to be tactful if you are organizing a payment plan for the withdrawing member’s interest in the business. The complex nature of these decisions may result in conflict between members.
What happens if conflict arises?
You may have to rely on alternative dispute resolution to reach a productive outcome. The apparent formality of these negotiations may seem daunting, but it can be valuable to have a person in the room who is focused on helping you and other members reach an outcome that feels right.
As part of these negotiations, you may write a supplemental document that outlines the terms of the buyout agreement and the steps each member will take as one withdraws. Just like the operation of your business, these terms are flexible and can be tailored to meet your unique needs.
What does the future of your business hold? As a business owner, you know you must have a plan, but that plan may fail when one member’s participation ends. Taking care when a member withdraws from an LLC is important to ensure a fair outcome for both the business and its members.