How to Add a Nonvoting Investor to an LLC

By Elizabeth Rayne

Adding a nonvoting member to your limited liability company may be an opportunity to bring in more investors while maintaining control over your business. An LLC is a business that provides the limited liability of a corporation, with the management structure of a partnership. The state law where your LLC is located will determine how the company is formed, and how the LLC may be managed. State laws may be similar, but some states do not allow for nonvoting members.

Step 1

Request a meeting with all the members of the LLC responsible for making management decisions. Unless otherwise specified in your operating agreement or articles of organization, all LLC members have a say in the management structure of the LLC, and there must be a consensus before making any major changes. Contact all the appropriate members to schedule a time and place to meet.

Step 2

Amend the operating agreement to create a nonvoting class of members. At the LLC meeting, have all the members who are responsible for making management decisions vote, by a show of hands or on paper, in favor or against making changes to the operating agreement. All LLC members must agree to make the change, unless otherwise specified in the agreement.

Ready to start your LLC? Start an LLC Online Now

Step 3

Amend the operating agreement and the articles of organization to reflect the vote. Your LLC will now be a manager-managed company, meaning only certain members have the authority to vote in business matters and make decisions on behalf of the LLC. Change your operating agreement to state that it is now manager-managed, and state which members may make decisions on behalf of the company. If you initially organized your LLC as a member-managed company, in most states, you are required to amend the articles to show the change in management structure. Contact your state's secretary of state to find out your requirements or enlist the aid of an online legal document preparer.

Step 4

Negotiate a price with the investor to buy into the company. In negotiating the price, flesh out the investor's share of profit distributions, profit and loss allocation, access to capital, and any other potential perks of becoming a nonvoting member of the LLC.

Step 5

Draft an agreement and have all the members and the investor sign the agreement. The agreement should include information about the investor's ownership rights, the amount of investment, right to disbursements and allocations, and legal compliance. Use this opportunity to clarify that you are all on the same page about the investor's nonvoting role in the LLC.

Step 6

Change the company's records to reflect change in management. Some states may require LLCs to update the public record of the LLC's management and include the new nonvoting member. Additionally, you may be required to update your state's department of taxes about the management changes.

Ready to start your LLC? Start an LLC Online Now
How to Omit a Member of an LLC


Related articles

How to Buy a Membership Interest in an Existing LLC

A limited liability company is owned by its members. The unique business structure allows the owners to keep their personal assets from actions by creditors of the LLC. If you want to become part-owner of an existing LLC and share in its profits, you'll need to buy a membership interest. You'll need consent from the current members to buy an interest, and your control over the business might be limited.

How to Remove an Officer From Articles of Incorporation

A corporation is organized under state law by filing articles of incorporation that specifically conform to the state's statutes. Most states make listing members of the board of directors in the articles optional or require only a listing of initial directors but not updates when the composition of the board changes. If a corporation chooses to list board members and wants the information to be current, it can change the names by amending the articles of incorporation.

How to Add a Partner to a LLC Using Sweat Equity

The existing members of a LLC have great flexibility to establish the procedures for the admittance of new members. As long as the LLC operating agreement doesn´t prohibit it, new members can join the LLC on the basis of "sweat equity," rather than having to contribute cash or property to the business. This means that a new member promises to perform services in exchange for an ownership interest in the LLC.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

How to Acquire an LLC

People may be curious about how to begin or start a limited liability company from the ground up. A business investor, ...

How to Change an LLC Operating Agreement for Washington State

A limited liability company's operating agreement is the heart of the LLC, because it establishes the entire structure ...

How to Add an Entity to an Existing LLC

Limited liability companies can have as many members as they wish, or they can have one member. Corporations can be ...

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 ...

Browse by category
Ready to Begin? GET STARTED