When another member of your Kentucky limited liability company (LLC) says they want out, the first reaction may be uncertainty. What happens to their share of the business? Does the company have to buy them out? Can they simply resign? The answers often depend on how you structured your LLC and what your operating agreement says.
Check what your operating agreement says
Start with the operating agreement. It may explain how a member can leave, how much notice they must give and whether the company or other members can purchase their interest.
It may also spell out how to value that interest and what happens to the departing member’s voting rights. Clear rules like these can make building a business with others easier when ownership changes.
Find out whether the member can resign
Kentucky law treats member-managed and manager-managed LLCs differently. Under the state’s rules for member resignation, a member of a member-managed LLC can generally resign by giving 30 days’ written notice, unless the operating agreement changes that rule.
In a manager-managed LLC, resignation generally requires the consent of the other members unless the agreement provides another process. That makes it important to confirm your company’s management structure before anyone takes action.
Understand what happens to their ownership share
Leaving the LLC does not necessarily mean the departing member gives up every financial interest in the business. Kentucky law generally treats a former member as an assignee of the ownership interest after resignation.
The rights after an assignment can include receiving distributions connected to that interest, even though the former member may no longer participate in managing the company. Your operating agreement may change some of these default rules.
Determine whether a buyout is required
A resignation does not automatically mean the LLC must write the departing member a check. If your operating agreement includes a buyout provision, it may already tell you how to calculate the member’s interest and when payment should occur. Without that provision, the remaining members may need to negotiate whether the company or another owner will purchase the interest.
Deal with debts and personal guarantees
Ownership is only part of the picture. Review loans, leases and other contracts that involve the departing member personally. For example, if that member guaranteed a company loan, leaving the LLC usually does not erase the guarantee. The lender may have to agree before the member can walk away from that obligation.
Make the ownership change official
Once you know how the departure will work, put the details in writing. Update ownership records, banking authority and the operating agreement when necessary. You may also need to review state filings if the change affects information already on record. Handling these details carefully can help the remaining owners understand who controls the company, who receives future distributions and which obligations still need attention.