Adding Members to an LLC

Many entrepreneurs form limited liability companies to shield their personal assets from liability and obtain additional tax benefits. LLCs can be single-member, with one owner, or multi-member, with two or more owners. Unlike corporations, an LLC's authority and operation vary depending on the state in which the LLC was legally formed. However, states have similar rules regarding adding additional members to an LLC.

A limited liability company member is an individual or entity whose name is documented in the LLC's records as the owner of a membership interest. Those who become members upon legal formation of the LLC are typically listed in the Articles of Organization. Some LLCs -- for example, those organized to raise funds and acquire property -- might have specific, outlined dates or events for adding members in their formation documents. Those additional members would be added when those dates or events occurred.

An individual or entity can acquire a membership interest in the LLC by following the terms outlined in the operating agreement. If the operating agreement does not provide that level of detail, then a new member can be added upon agreement on the individual and the terms, including the membership interest percentage, by all existing members. That unanimous consent must be documented in written form and signed by all members.

An existing member might assign or transfer all or a portion of his membership interest to another if that member has the power to do so. The operating agreement would detail any assignment or transfer rights. The new member would become so upon the exercise of that right and compliance with the terms outlined in the operating agreement governing the assignment.

If you created a single-member LLC and now want to add other members to make your LLC a multi-member LLC, the process is simpler because there are no other members with whom you must consult. You should amend your Articles of Organization to include the names of the additional members. You will also need to amend your Operating Agreement to address the change in membership interests and the issues that could potentially arise from having multiple owners.

Your state might require you to file any amendment of your Articles of Organization with the Secretary of State. Check with your state and if required, file the amendment. Other states require LLCs to file an annual list of current members/managers. You would simply update your member list with this filing.

If you already registered your single-member LLC for an employer identification number, or EIN, and you chose the default pass-through tax status, then you must file Form 8832 with the IRS because adding members to your LLC changes the default tax status to a partnership. If you were a multi-member LLC, you need to notify the IRS of the change in membership and provide the names of the new members.