How to Add a Member to an Existing LLC

By Stephanie Kurose, J.D.

How to Add a Member to an Existing LLC

By Stephanie Kurose, J.D.

An LLC, or limited liability company, is a common type of business structure that provides its owners, or members, with ownership flexibility as well as personal liability protection. Most LLCs create an operating agreement, which essentially lays out the rules and procedures for how the business should operate. If an LLC creates an operating agreement, the state considers it as a governing legal document.

Businesspeople gathered around conference table

It is not uncommon for an existing LLC to add new members as the business grows and expands its operations. If an LLC wants to add a new member, it must follow the requirements set forth in the operating agreement. If the LLC does not have an operating agreement governing the addition of new members, then the default state law applies. The process of adding a member to an existing LLC usually involves the following steps.

1. Determine what percentage of ownership the new member will receive.

Adding a new member to an existing LLC necessarily alters the percentage of the business each existing member owns. Thus, the first step is to figure out how much of the business the new member will own. The percentage of ownership does not need to correspond to how much capital the new member invested in the company, unless the LLC does not have an operating agreement and state default rules apply. The new member's ownership reduces the amount of the business the existing members own.

2. Amend the existing operating agreement.

To reflect the addition of the new member and the change in ownership percentages of the existing members, the LLC should amend its existing operating agreement. Because the state treats the operating agreement as governing, it is imperative that any significant changes be accurately reflected in that document.

In addition to current ownership, operating agreements should include voting procedures, the daily responsibilities of each member, the financial contributions of each member, and any other pertinent information relevant to business operations.

3. Amend the articles of organization.

States require LLCs to file articles of organization to formally exist as a business. In the majority of states, articles of organization must include basic contact information of all of the LLC's members. Once the LLC has added a new member, it must file a form amending the articles to reflect the new owner. An LLC can check with the agency that has jurisdiction over business in its state, usually the Secretary of State, to determine whether member information is required in the articles of organization.

4. Obtain an employer identification number.

An employer identification number (EIN) is a unique number assigned to the LLC by the Internal Revenue Service (IRS). The IRS uses this number to identify the business for federal tax purposes. An EIN can be thought of as the LLC's social security number. An EIN may also be required if the LLC wants to open a bank account.

Single-member LLCs are not required to obtain an EIN. Instead, the member can use their personal social security number. However, once a new member is added to a single-member LLC, the LLC has to either file for its first EIN or file for a new (multiple-member) EIN if it already had one.

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