Buying out a Member of an LLC
The MoneyThe member should resign all offices by a simple resignation letter. Then the parties need to agree on the value of the LLC as a going concern.
The DiscountsFor the first cut, the leaver might believe he should receive his percentage of the total value. The trouble is a minority ownership interest is not worth its pro rata share of the total. Try to sell it to an unrelated third party. It carries no control, cannot make policy decisions and cannot even make distributions of profits. Also it is hard to sell for those reasons. Compare the situation if the other two members decided to sell out to a third party. That person would be buying control and would have to pay a control premium over and above the pro rata share of the agreed-on value. Appraisers in judicial splitups apply a discount to the minority interest for lack of control and lack of marketability, typically 15% to 20% for each reason, so the total discount would be 30% to 40% from the pro rata share. Of course, if the "fastest way to get them out" controls, then the control members should forget about the sophisticated discounts and just pay the pro rata share.
The CovenantAnother factor is that in California, you can get an enforceable covenant not to compete where it is given in connection with the sale of an interest in a business. If the departing member has the ability to compete, the control members should insist on a covenant or another discount on the price. The parties should do an allocation of assets between capital assets (capital gain to selling member) and other assets, such as receivables, (ordinary income tax). Obviously if there is very much money involved, each side should hire a business lawyer.