How Do I Add Another Owner to My LLC?

By Rob Jennings J.D.

The passage of time can bring about waves of change in the operations of any business. Shifts in market conditions, operational costs and your own life circumstances can create a situation in which you find it advantageous to bring in new talent. When the business in question is a limited liability company (LLC), you must take certain steps to add a new owner, or "member." Doing it right will help you avoid negative tax consequences and preserve the limited liability protection that led you to organize as an LLC in the first place.

The passage of time can bring about waves of change in the operations of any business. Shifts in market conditions, operational costs and your own life circumstances can create a situation in which you find it advantageous to bring in new talent. When the business in question is a limited liability company (LLC), you must take certain steps to add a new owner, or "member." Doing it right will help you avoid negative tax consequences and preserve the limited liability protection that led you to organize as an LLC in the first place.

Step 1

Review your operating agreement, specifically the sections pertaining to adding a new member to the LLC. Adding a new member in violation of the operating agreement will not only get you in hot water with the other members, but in a best case scenario it will endanger the limited liability shield in the event of a lawsuit against the company. Your operating agreement may require a meeting and vote, written consent or spoken consent of all or a majority of members. If the agreement is silent as to the manner of consent, draft a simple document stating that the members intend to add this specific new member as of this specific date. If you have no operating agreement at all, you should get one at this stage.

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Step 2

Amend your operating agreement to add the new member to the LLC and bind her to the provisions of the agreement. While you may draft an entirely new operating agreement, it may be sufficient to simply execute an amendment. Identify the date of the original agreement and the parties, state the date the members agreed to add the new member, and specify the sections of the original operating agreement to be amended and how they are to read now. Don't forget to classify the new member's interest. A managing member will have the right to participate in management and operations, but a non-managing member will be entitled only to a share of the profits. This difference has important tax ramifications.

Step 3

Amend the articles of organization that you filed with the secretary of state or corporations when you organized your LLC. Most states have a simple form for you to fill out and submit. Indicate all changes in membership, membership interests, addresses, business purpose or registered agent for service of process. The fee for amending your articles of organization varies from state to state and should be listed on the website for the secretary of state or corporations in your jurisdiction.

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How to Add an Entity to an Existing LLC

References

Related articles

How to Draft an LLC Agreement

State law regulates the operations of limited liability companies, or LLCs, far more loosely than it regulates corporate operations. In addition, no state requires an LLC to create an operating agreement. If a dispute arises among members of an LLC with no operating agreement, relatively few state law default rules exist for LLCs to rely on as standards to resolve disputes. For this reason, it is important for an LLC to create a comprehensive LLC operating agreement and have it signed by each member.

Can an LLC Operating Agreement Be Amended?

The operating agreement of a limited liability company sets the guidelines and regulations for the company's business functions and structure. The agreement is typically prepared by the founding owner or owners, referred to as members, and kept by the LLC. An operating agreement is a legally binding document once signed by LLC's members, functioning as a contract. The agreement may be amended by the members if changes are needed.

How to Add a Member to an LLC Company

A limited liability company, or LLC, is managed like a partnership rather than through a regulatory framework. It requires the consent of the partners, known as members, to accomplish anything. Members can execute an operating agreement to govern the procedure for making most decisions, but an operating agreement is optional in most states. Some states have default provisions in their Limited Liability Company Acts that dictate how certain situation are to be handled if an LLC hasn't formally adopted an operating agreement. The addition of new members falls under these default provisions.

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