An LLC is a flexible business entity that has almost unlimited ability to organize its ownership under an operating agreement. Owners of an LLC are known as members. If there is an operating agreement, addition of a new member must occur in accordance with the terms of this document; otherwise, state default rules govern the process.
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Negotiate the percent of ownership the new member will receive. Unless state default rules apply because there is no operating agreement, each member's percentage of ownership need not correspond with the percentage of capital he invests in the company.
Amend the operating agreement to reflect new ownership. Although an operating agreement is not required in every state, to avoid potential conflict, your LLC should have an operating agreement that reflects the current ownership of the company. According to Standard Legal, this document should include the percentage of ownership for each member, managerial responsibilities and voting rights.
Obtain an EIN or a new EIN, if necessary. If your LLC was a single-member LLC prior to taking on a new member, you will have to file for an EIN from the IRS if you didn't have one, or a new EIN if you did have one. Your LLC will now be taxed as a partnership.
Tips & Warnings
- Any terms regarding how to add a new member that are not contained in your company's operating agreement are likely to be controlled by state law, which varies. Some states may require unanimous consent among all existing members and require certain voting or managerial rights. Be sure to consult your state's laws if you don't already have a comprehensive operating agreement.
References & Resources
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