How to Remove a Member from a Nevada LLC
Removing a member from a Nevada LLC is pretty straight forward. However, it is not done simply by publically filing a document with the Secretary of State of Nevada. “Membership” in an LLC is ownership in the LLC and depending on how the LLC is managed, with membership may come some management authority. Therefore, it is not something that can simply be “removed” by the whim or action of other members (or managers).
Step I – Change Internally
Any changes made to the membership are usually done privately through the LLC’s operating agreement or separate agreement first, that is without a public filing. If an LLC has an operating agreement, then the process to deal with a member leaving may be outlined. Also, who can make changes to the LLC concerning the departing member depends on whether the LLC is managed by its members or by managers. To determine which one applies, go no further than the Articles of Organization, filed with the Secretary of State to create the LLC, where this is listed plainly.
If a LLC is Member-Managed, that means each member has not only ownership, but also management authority. To ensure that the member leaving the LLC and the LLC are protected, the rights of ownership and rights/responsibilities of management authority should be dealt with separately.
- Redemption of Ownership Interest – If two people owned a truck, and they agreed to part ways and owner one wanted to keep the truck, he/she would have to pay owner two for their ownership. It is the same with the ownership of an LLC. Absent an already signed operating agreement by all members spelling out the process for compensating the departing member for the value of their ownership in the LLC (member interest), this must be done by agreement of all members, including the departing member. Usually, the member would redeem his/her interest in the LLC (often evidenced by a member certificate) for whatever compensation was agreed. The departing member would sign (endorse) the back of the member certificate giving up any further rights he/she had in the LLC. NOTE: If the member and the LLC cannot agree on terms, all parties should seek legal counsel.
- Resigning Authority – Because the member of a member-managed LLC has management authority, and therefore the responsibility that comes with this, that member needs to resign his/her authority. This resignation should be legally served to the LLC; that is delivered to the registered agent of the LLC by service of process or certified mail, etc. The state also provides for the public filing of a resignation (see Step II).
- New Operating Agreement – The remaining members should now draft and sign a new operating agreement showing all current members (without the resigned member).
NOTE: Even when everyone is in agreement, it is wise for all parties to seek legal counsel to review the actions made and instruct whether any additional actions should be taken for further protection.
If the LLC is Manager-Managed, and a member is leaving, that member has no authority in the LLC, only ownership in the LLC. Therefore, the member would follow the same procedure "Redemption of Ownership Interest" above for redeeming his/her interest in the LLC.
If the member is also a manager, he or she should also follow the proceedure for "Resigning Authority" above to resign their authority and position as manager in the LLC.
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Step II – Making it Public – What should be filed with NV SOS?
Unlike other states, where the optional function of filing a change is simply “reporting” the changes which have taken place, Nevada offers a specific filing for resignation, which removes the member/manger from the public record without having to amend the Annual List of Members, Managers, & Registered Agent.
ONLY if the departing member has management authority in the LLC (i.e. a member of a member-managed LLC or manager in a manager-managed LLC), he/she should also file a Certificate of Resignation of Officer, Direct, Manager, Member, General Partner, Trustee or Subscriber with the Nevada Secretary of State. Like everything else with the NV SOS, you must include a fee ($75) with your filing. Send signed form and fee (written to Secretary of State) to Secretary of State, 202 North Carson Street, Carson City, NV 89701-4201. Allow 2 to 4 weeks for filing, unless you include an additional $75 fee ($150 total) to expedite the filing within 24 hours.