How Do I Register an LLC for Multiple Members?

By Tami Kamin Meyer

How Do I Register an LLC for Multiple Members?

By Tami Kamin Meyer

Multiple people can serve on the board of a limited liability company (LLC), a legal entity formed to own and operate a business according to the laws in the state where it was formed.

The LLC's operating agreement should spell out the process and be registered with the secretary of state's office in the state where the entity was formalized. If it doesn't, or the instructions are unclear, check with the laws of the state where the entity is registered for further direction.

It's important to note, too, that while the process for adding new members to an LLC is fairly simple, tax implications for those amendments may arise.

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Be Aware of the Consequences

A new owner may inject excitement, ideas, labor, and even funds into an LLC, but the supplemental owners also diminish the percentage of profits for other owners. And once people have an ownership interest, it may not be easy to remove them from the partnership if things don't work out as expected.

Adding another owner can also have tax consequences. If you formerly owned a single-member LLC, you'll no longer have the option of being taxed as a sole proprietor—you will instead be taxed as a partnership or corporation.

To make sure you're aware of the full implications of adding a new LLC member, it's wise to consult with a business attorney.

Review Your Operating Agreement

An LLC's operating agreement is ideally thorough enough to describe the method for adding or removing an owner from an LLC. That agreement should also spell out how ownership is voted on. Following the rules in the operating agreement is important because doing so proves an LLC is truly an independent entity that follows its own promulgations.

If an operating agreement does not discuss how the entity is to add or unseat partner from the LLC or if the document doesn't exist in the first place, the limited liability laws of the state where the LLC is registered control the transaction.

While some states permit supplemental owners to be added or removed from an LLC with nothing more than a mere change in paperwork, others require an LLC to be dissolved and then re-created and refiled with the state to reflect a change in ownership.

An operating agreement is intrinsic to the success of a multimember LLC because it describes the rights and responsibilities of all its owners. Having one is like having a prenuptial agreement. Both documents detail how assets are to be divided if members officially change their membership. In the case of an LLC, it further explains how participants can either join the LLC or be removed from it.

The agreement should also describe the specific details of a new owner's participation in the LLC. For example, is their contribution monetary only? Does their involvement in the LLC entitle them to a percentage of the entity?

Once the new owner's level of involvement is determined among the LLC's owners, you should create an amendment to the operating agreement (see below for more info). After that, existing owners will formally vote on whether to accept or reject the proposed amendment.

Decide on the Specifics

Once you understand the procedure for adding a new owner, you must determine the specifics of your arrangement. LLCs are generally quite flexible in their ownership structure. For example, a person can own a certain percentage of the business but may be entitled to different profit distribution.

Discuss ownership percentages with the existing LLC members as well as the prospective new owner to arrive at an agreement.

Prepare and Vote on an Amendment to Add An LLC Owner

The amendment should list the new owner's name, any capital contribution the new owner is making, the owner's percentage interest in the company, and the percentage of profits and losses that can be allocated to that owner.

Standing owners then formally vote on the amendment in the way described in the operating agreement. Document the vote in your LLC's minutes and/or with a resolution, and have all the LLC's owners—including the new one—sign the amended operating agreement.

Be certain to keep the amended operating agreement in a safe place, such as a secured locker or the office of the LLC's attorney.

Amend the Articles of Organization (If State Law Requires It)

When an LLC is initially created, articles of organization are required by states. Some jurisdictions provide a form to amend the articles to add a new member. In other states, there is no LLC owner information in the articles, and no amendment is necessary.

Review the requirements for your state by contacting the state agency responsible for business filings (usually the secretary of state) or ask your lawyer, if you have one.

 

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.