Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

How Do I Add a Member to My LLC?

How Do I Add a Member to My LLC?

Advertising Disclosure


How Do I Add a Member to My LLC?

How Do I Add a Member to an LLC?

As your business begins to grow, you may consider taking on a new business partner or investor. You can accomplish this by undergoing the simple process of adding a member to your LLC.

Although the process may seem simple, you should proceed with caution and first consider the tax and business consequences of adding a member.

Examine Your Operating Agreement

The first step of the process is to consult your company’s existing Operating Agreement for the rules regarding adding new members. In addition to reviewing the voting procedures, take careful consideration in determining the ownership structure, how profits and losses are distributed, and how this will change once the new member is added. Honoring business formalities and diligent record keeping will help you maintain the legal protections afforded by the Limited Liability Company and guard against any future internal disputes with your new member.

If you do not have an Operating Agreement currently, consider adopting one before adding a potential new member. In most states, if an LLC does not have an operating agreement in place, the rule is that any additional member will become an equal partner by default. However, you can stipulate different regulations for the terms regarding new LLC members by simply drafting and adopting an LLC operating agreement before changing the membership structure. Be sure to check the rules with the Secretary of State. Creating an Operating Agreement is substantially easier when there is only one member making decisions in the LLC.

Understand the Tax Consequences

When your existing LLC changes from single-member to multi-member, you lose the option to be taxed as a sole proprietor. By default, your company will be regarded as a partnership for tax purposes by the IRS once there are multiple members. This means you must decide whether you want your entity to be taxed as a corporation or a partnership.

If you want your business to receive corporation tax treatment, you will need to decide whether you wish to elect to be taxed as an S-Corp or C-Corp. If you do not want to be taxed as a corporation, you might be best served using a different method to accomplish your business goals. Either way, you will need to file a form to change your structure designation.

Talk with a tax accountant who can look at both the business and personal finances to help advise on the best path.

Decide on the Terms

The exact details regarding ownership changes and management for the new member should be decided and discussed with the current members. Any change in ownership interest or capital contribution of the new member will also need to be decided.

Vote & Amend

To cement the decision to add a new member to an LLC, a formal vote needs to be held among existing members. If you are the sole member, make a note in the business records of your vote regarding the new member’s voting rights, managerial responsibilities, and ownership percentage.

Once the vote has been recorded, you may be required by your state to amend your articles of organization to include the new member. Depending on your state, there may be additional legal formalities. For example, in California, all changes in ownership of an LLC must be reported to the California State Board of Equalization.

If you need to file an amendment, be prepared to furnish the following information: the new member’s name, their ownership percentage, address, and any capital contributions made by them.

If your state does not require a formal amendment to be filed, you should amend your LLC’s operating agreement to reflect the membership change and keep this for your records.

Ongoing, if your state requires the names of members, the new members will need to be included in your annual report.

Make Your Tax Status Election

Before adding a new member, you may have been doing business under your social security number as a single-member LLC’s federal tax identification number. If so, you will need to apply for a federal employer identification number (EIN). The easiest and quickest way to apply is online through the IRS website. See our article on how to apply for an EIN.

However, if you already obtained an EIN for your LLC prior to the membership change, you will not need to file for a new number.

If you decide that you want your multi-member LLC to be treated as a corporation, you should file Form 8832 from the IRS to make this election.

If you have more questions, be sure to consult an attorney to potentially avoid a costly lawsuit down the road.

Related Links:

Decide on a business structure designation with the IRS: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures

How Do I Add a Member to My LLC?

How Do I Add a Member to My LLC?

Leave a Reply

Your email address will not be published. Required fields are marked *

Some (but not all) of the links on StartUp101.com are affiliate links. This means that a special tracking code is used and that we may make a small commission on the sale of an item if you purchase through one of these links. The price of the item is the same for you whether it is an affiliate link or not, and using affiliate links helps us to maintain this website.

StartUp101.com is also a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Our mission is to help businesses start and promoting inferior products and services doesn’t serve that mission. We keep the opinions fair and balanced and not let the commissions influence our opinions.