How Do I Add Another Owner to My LLC?

By Cindy DeRuyter, J.D.

How Do I Add Another Owner to My LLC?

By Cindy DeRuyter, J.D.

As with anything in life, your plans and needs for your business can evolve over time. As your business changes and grows, you may want to add other owners in order to obtain additional capital or to reward long-term employees for their contributions to the business.

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If you decide that it makes sense to add another owner (also sometimes called a member) to your existing limited liability company (LLC), it is important to follow several steps to ensure the process is handled correctly.

1. Look to your existing operating agreement.

Your LLC's operating agreement should include provisions governing decisions about adding or removing members, so review those provisions before bringing a new member on board.

Whether the agreement says all existing members must unanimously agree in writing, states that a majority of members must vote during a membership meeting, or otherwise provides a framework for consenting to adding a new member, make sure those requirements are adhered to.

If your LLC does not have a current operating agreement, or if the agreement does not specify how new members will be added, the existing members should vote on adding the new member and that decision should be recorded in writing. In making this decision, members should evaluate what the new member would bring to the company and how ownership percentages and company management would change if the new member were added.

Of course, if you are the sole member of your LLC and have decided to add one or more additional members, you can make this decision unilaterally. Just be sure to document it in writing.

2. Amend or replace the operating agreement.

After you have added one or more new members, you should either amend your operating agreement to reflect the changed ownership percentages and related provisions or implement an updated agreement.

It's also important to specify whether all members have voting rights, managerial responsibilities and/or other governance rights, or if certain members are restricted to simply being entitled to share in the profits of the business.

If you didn't previously have an operating agreement in place, create one to reflect your new LLC structure and wishes. Similarly, it may also make sense to modify your operating agreement after you've added a new member.

3. Amend the articles of organization.

You may also need to amend the articles of organization you initially filed with the secretary of state's office(s) in the state(s) where you registered the business. Some states require LLCs to report and provide certain information about each member of the LLC.

Check with your state if you are not sure what is required, paying close attention to filing timeframes, forms, and fee requirements.

4. Understand tax implications.

If you are adding a new member to a single-member LLC that was previously treated as a disregarded entity for tax purposes and that previously used your social security number, you will need to obtain an IRS employer identification number (EIN) after adding one or more new members.

Similarly, if adding a new member means changing the tax classification for the LLC, work with your tax professional to determine whether entity classification or other forms must be filed with the IRS.

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