Adding members to a Limited Liability Company (LLC) can be a simple process, but it's essential to make sure that you follow the Operating Agreement. If you have a single-member LLC, then adding new members is as simple as including them in the Operating Agreement.
If you have a multi-member LLC, you'll need to create a new Operating Agreement that includes the new member.
Adding members to an LLC can be a great way to grow your business, and it can also help you attract new investors.
When adding a new member, be sure to get their consent and make sure that they understand the Operating Agreement. You'll also need to ensure that the state LLC authority approves the new member.
Review Your Operating Agreement
This is to see what your LLC's operating agreement says about adding members. An LLC operating agreement should describe how a new member is added, and they may provide a specific procedure to follow.
It can include specific requirements for approval by the other members and business partners, but if there are no requirements included, you must get unanimous consent from your existing members.
Be sure to get a copy of the Operating Agreement for each of your members, and make sure that the Operating Agreements are in line with any requirements specified by the state LLC authority.
Understand the Consequences
Adding a new member to an LLC also means adding a new business partner, and this can have consequences, so it's important to understand them before making a decision.
When adding a new member, you'll need to distribute company assets and assign membership interests.
This can impact the business and its members in several ways, so be sure to discuss it with your existing members and get their consent.
Adding a new member can also impact the business's liability. If the business is sued, the new member could be held liable along with the other members.
It's important to understand the risks involved in adding a new member before making a decision.
Hold a Meeting of the LLC Members
To add an LLC member to an LLC, you must hold a meeting of the business members. At this time, you'll need to get unanimous consent from the existing business members for the new LLC member to be added.
If an LLC member objects, they can choose not to agree with the process and drop out of the business.
After the business members agree to add the new member, you'll need to make sure that there is a consensus on how they will be added.
If you have a single-member LLC, this means including the new business member in your Operating Agreement. If you have a multi-member business, you'll need to create an Operating Agreement that includes the new business member.
In either case, you'll need to make sure that the business member agrees to the Operating Agreement and is aware of their rights and responsibilities. You'll also need to make sure that the state LLC authority approves them.
Get Approval from the State LLC Authority
In order to add a new member to your LLC, you'll need to get approval from the state LLC authority.
This is usually done by filing a form called an "Application for Consent to Add Member." The form will ask for information about the new member, and it will also require the signatures of all of the current members.
Be sure to follow any specific filing requirements, and be aware that this process can take a few business days.
If you need to add a member quickly, it's best to contact the state LLC authority and ask about their approval process before adding them to your business.
Send the Amendments to the Secretary of State
After you've gotten the approval of the state LLC authority, you'll need to send a copy of the amendment to the Secretary of State. This can be done by mail or online, and you'll need to include all of the information about the new member.
Be aware that there may be a filing fee associated with this process, so be sure to get an estimate before sending in your filing.
After you've filed the amendment, it will be sent to the Secretary of State for approval. If there are no problems with your filing, then they'll stamp it and return it to you.
If you want to change your business management structure from manager-managed LLC to a member-managed LLC and vice versa, you will also need to amend articles of organization.
File Any Required Tax Forms
In most cases, federal tax form 8832 must be filed when adding a new member to your LLC.
Make sure that you follow the requirements for this form exactly, and get help from a tax professional if necessary. Failure to file this federal tax form can lead to federal fines and penalties.
Each state will have its own tax forms and filing requirements. Be sure to get help from a tax professional if necessary, and make sure that you follow all of the rules and regulations set out by federal and state authorities.
Also, file the Entity Classification Election Form with the IRS, if needed.
Check Your State’s LLC Act
In order to add a new member, you typically need to amend your state LLC act. It's important that you carefully examine this document to make sure that nothing will change as a result of the addition of the new member.
Some states have a specific process for adding a member, while others allow you to simply add the individual to your Operating Agreement. Be sure to follow the specific rules and regulations set out by your state LLC authority.
FAQs
How Do I Change a Single-Member LLC to a Multi-Member?
A single-member LLC can be changed to a multi-member LLC by filing an amendment to the Articles of Organization with the appropriate state agency.
The amendment must include the names and addresses of the new members, and the percentage of ownership each will hold in the company.
Changing from single-member to multi-member means losing the option to be taxed as a sole proprietor. You will also need to obtain a federal employer identification number (EIN).
Is a Married Couple a Single-Member LLC?
No. A single-member LLC is a limited liability company with only one owner, and the entity's tax classification is disregarded for income tax purposes.
