Two or more people who go into business together automatically create a general partnership unless they incorporate or organize the business as a wholly distinct legal entity. Business co-founders often utilize these separate structures to obtain personal asset protection and general and joint liability shielding. Popular business structure choices include limited liability companies, limited liability partnerships and corporations. LLC owners are called members. Because of the allowed tax treatment as a partnership, sometimes multimember LLCs refer to their owners as partners. The state of establishment imbues the LLC with authority. Hence, the laws governing the addition of members are state specific.
Specify an Event or Date
Most states require LLCs to list member names and addresses on the Articles of Organization at formation. At formation, some LLCs outline their intention to add additional partners on a specific date or occurrence of a certain event. For example, your real estate development LLC founding members approach several investors about participating in an office building’s development. Those investors state their desire to wait until you acquire the lot. Your LLC's documentation would clearly state that the LLC would provide the new investors with membership interests affording specified rights upon the closing of the land purchase.
Follow the Operating Agreement
An LLC can sell or provide membership interests to new members by adhering to the instructions delineated in its operating agreement. If your LLC does not have a detailed operating agreement, you can amend it. Alternatively, your LLC can also add new partners by creating a written agreement that lists the new partners and the membership rights and terms. All existing members must consent to the agreement and sign.
Assign Membership Interests
If your operating agreement allows and imbues certain members with the power to do so, your LLC may add a new member by transferring or assigning all or a portion of one member's membership interest to another. The operating agreement details the transfer or assignment privileges. Upon the existing member's exercise of that power and in compliance with the terms, his assignee would legally become a new member.
Notify the IRS
As a multimember LLC with an employer identification number or EIN, you must notify the IRS in writing of any membership changes. You must include the new members' names and, if possible, use company letterhead for this notification.
Inform the Secretary of State
If your state requires you to file Articles of Organization amendments with the Secretary of State, you must do so. You can often upload the amendments online. Confirm on your state's Secretary of State website. Alternatively, your state may require you to file an annual list of LLC current members and managers. If so, you would add your new members to this yearly filing.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.