Standard Operating Agreement: Updating Member Roles & Payouts
How to Remove an LLC Member in Texas
Removing a member from a Texas LLC requires following your operating agreement first, then the Texas Business Organizations Code. The process is straightforward if you have the right steps in order.
Check Your Operating Agreement
Your LLC's operating agreement is the first place to look. It should spell out exactly how members can be removed, what vote is needed, and what notice must be given. Most agreements require either unanimous consent or a majority vote by the remaining members. If your agreement is silent on removal, Texas law fills in the gaps—but your agreement always takes priority if it addresses the issue.
If you don't have a copy of your operating agreement, ask the other members or check with whoever manages the LLC's documents. If no written agreement exists, Texas treats removal as requiring consent from at least two-thirds of the remaining members.
Vote to Remove the Member
Hold a member meeting (or written consent vote, which is faster) to formally decide on removal. Document this with a written resolution that includes:
- The name of the member being removed
- The date of the vote
- The result (how many voted for and against)
- The effective date of removal
Texas allows written consent in place of a meeting—all members can sign a consent document instead. This is often simpler for small LLCs. Keep this resolution with your LLC records.
Settle the Member's Interest
When a member is removed, you must determine the value of their ownership stake and how they'll be paid. Your operating agreement should specify this. Common approaches are:
- Buyout at fair market value, paid by the LLC or remaining members
- Forced sale of the interest (the LLC or other members buy it)
- Dissolution and distribution of assets
If your agreement doesn't address payment terms, Texas law allows the removed member to demand a buyout at fair value within a reasonable timeframe. Get the value appraised or agreed upon in writing to avoid disputes later.
Update Your Operating Agreement and Ownership
After removal, amend your operating agreement to reflect the new member structure, ownership percentages, and profit/loss allocations. This amendment should be signed by all remaining members and added to your LLC records.
Update your cap table (capitalization table)—your document showing who owns what percentage of the LLC. This is critical for any future financing, sale, or dispute.
File Amendments with Texas
If the removed member's name appears on your Certificate of Formation (filed with the Texas Secretary of State), you don't need to amend it with the state. However, if you're removing a manager-member in a manager-managed LLC and the removed person was listed as a manager, you should file an amendment to update management structure.
You can file this online through the Secretary of State website. The cost is minimal, and it takes a few days to process.
Close Out the Member's Access
Remove the departing member from any business bank accounts, credit cards, software subscriptions, and property access. Update your business insurance, tax records, and any vendor accounts that list them as an authorized user.
Tax and Legal Considerations
Notify your CPA or tax preparer of the removal so they can handle it correctly on your next tax return. A buyout may trigger capital gains tax consequences for the departing member, and the LLC may need to adjust allocations on Schedule K-1. If significant money is involved or the member contests removal, consult a Texas business attorney to ensure compliance and avoid liability.
One Step You Might Skip
If you want someone else to review whether your LLC's member records, operating agreement, and tax filings are aligned, LLC Compliance Audit at https://harvst.online/llc-compliance-audit is an AI-driven audit that costs $39 and flags gaps between what your agreement says, what your records show, and what your tax filings report. It won't tell you whether the member removal decision itself is right, but it will tell you whether you've executed it correctly on paper.