How to Document Members in a Limited Liability Company

By Edward A. Haman, J.D.

How to Document Members in a Limited Liability Company

By Edward A. Haman, J.D.

A limited liability company (LLC) with two or more members must maintain a record of each member's ownership interest. Such record keeping is necessary to appropriately allocate profits or losses, and to report taxes.

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LLC Member Information

The basic information an LLC needs to obtain from all members is their name, their mailing address, and their Social Security or tax identification number. A member who is an individual person will most often use their Social Security number for tax purposes, whereas a member that is a corporation, another LLC, a partnership, or other business entity will have an employer identification number (EIN).

Documenting Members in the Articles of Organization

Some states require the members to be listed in the articles of organization or other documents that must be filed with the state agency that regulates LLCs, which is most often the Secretary of State. Some states require this information to be provided annually. The information becomes public record, available to anyone interested in suing a member or in seeking information about a member's financial holdings.

In the interests of privacy—unless this is required by state law—the identities of the members should not be part of the articles of organization or other filed documents.

Documenting Members in an LLC Operating Agreement

Although not required in most states, it is strongly suggested that the LLC have a document commonly called an "operating agreement." The operating agreement can state each member's name, address, and tax ID number. It will also show each member's initial contribution of funds, property, or services to the LLC, and the percentage of profits or losses to be allocated to each member.

Since most states do not require an operating agreement to be filed with the state, it is a private document that does not usually pose the same privacy issues as do the articles of organization.

LLC Bookkeeping

The LLC's accounting records should have a separate account for each member. These separate accounts need to be set up even if the members are listed in the articles of organization or the operating agreement. The account of each member should include:

  • The member's initial capital contribution to the business. This number should reflect the amount of any money contributed, or the value of any property or services contributed.
  • Any additional contributions made.
  • Any withdrawal of contributions.
  • The member's percentage of ownership, which should be adjusted if necessary to account for changes in the member's capital contribution percentage.
  • The member's share of profits or losses. This number should include both the member's percentage share and the dollar amount of allocated profit or loss for the year.

LLC Tax Reporting

The accounting records for each member will be used in preparing tax forms.

For an LLC taxed as a partnership or an S corporation, each member must report their share of the profits on their individual tax returns, regardless of whether the profits are actually distributed to the member. The reporting process differs:

  • If the LLC is taxed as a partnership, the LLC will file IRS Form 1065 (Return of Partnership Income), showing each member's share of the profit or loss. Each member reports their share on Schedule K, Form 1065 (Partner's Share of Income, Deductions, Credits, etc.).
  • If the LLC is taxed as an S corporation, each member's profit or loss is reported to the member on IRS Schedule K-1, Form 1120S (Shareholder's Share of Income, Deductions, Credits, etc.).

For an LLC taxed as a C corporation, the LLC itself will pay taxes on profits—but only profits that are actually distributed to a member need to be reported by the member on their individual return. Any profits that are distributed to the member are reported by the member on his or her Schedule B (Ordinary Dividends).

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.

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