Jane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Jane Haskins, J.D. ContributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Written By Jane Haskins, J.D. ContributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Jane Haskins, J.D. ContributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Contributor Lee Davis ContributorLee Davis is a tech analyst who has been covering the document imaging industry for over five years. Currently, Lee is the Associate Director of Software and Scanners at Keypoint Intelligence, where he is responsible for maintaining coverage of docum.
Lee Davis ContributorLee Davis is a tech analyst who has been covering the document imaging industry for over five years. Currently, Lee is the Associate Director of Software and Scanners at Keypoint Intelligence, where he is responsible for maintaining coverage of docum.
Written By Lee Davis ContributorLee Davis is a tech analyst who has been covering the document imaging industry for over five years. Currently, Lee is the Associate Director of Software and Scanners at Keypoint Intelligence, where he is responsible for maintaining coverage of docum.
Lee Davis ContributorLee Davis is a tech analyst who has been covering the document imaging industry for over five years. Currently, Lee is the Associate Director of Software and Scanners at Keypoint Intelligence, where he is responsible for maintaining coverage of docum.
Contributor Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Updated: Apr 17, 2024, 12:04pm
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Adding a member to a limited liability company (LLC) is a simple process, mostly. There isn’t a ton of paperwork—only a few legal and tax forms—fees are minimal and you don’t necessarily need a lawyer or an accountant to get things done. That said, it’s not a bad idea to hire a professional. It is your business after all.
Do you have a new person joining your business? Learn how to add a member to an LLC legally with our easy to understand, step-by-step guide.
There are many reasons why you’d want to add a new member to an LLC. Adding new members provides you with the extra hands, eyes, ears and brain power that you need to maximize your company’s potential. A new member can also inject cash, talent, and/or relationships into the business to help it grow.
Whatever your reason for adding a new member, they should bring something to the table—cash, expertise, relationships, prestige—that can help you sustain and/or grow your company. Whatever they bring should increase the total size of the pie such that your smaller percentage of ownership is or will be worth the same or more than before you added the new member.
But adding a new member has other impacts on your business. If you’re a single-member LLC, then you will have to file taxes as a corporation or partnership, which is more complicated than filing as a sole proprietor. A new member also reduces the existing member’s share of profits and introduces yet another chef into the kitchen. If things aren’t working out, it’s not as easy to boot a member from the LLC as it is to fire an employee.
The process for adding a new member to an LLC is typically defined in the operating agreement, which describes foundational elements and key operational guidelines for your LLC. But you should also consult the LLC act of the state where your business is registered, so you know which documents have to be filed where and to ensure that you’re doing everything above board.
Most states don’t require LLCs to have an operating agreement. Operating agreements don’t have to outline parameters for adding a member to the LLC. If the process for adding a new member is defined in your operating agreement, then follow the instructions spelled out in the agreement.
If that process isn’t defined, then you can add those procedures to the operating agreement before adding the member, making sure you follow the correct procedure for amending the agreement. Otherwise, you should follow the procedure described in your state’s LLC act or statute. If you decide to add members without codifying a process first, many states will require a unanimous decision from existing members, and you may have to give admitted members equal ownership. In some states, you may need to dissolve the LLC to add new members.
It’s a good idea to include the process for adding new members to your LLC in your operating agreement as it gives you more control and flexibility.
After you’ve consulted your operating agreement and state LLC act or statute, it’s time for you and any other members to vet prospective new members, determine the terms of adding that new member and vote on whether to admit that member.
Unless you’re the owner of a single-member LLC, you can’t just start breaking off pieces of the company. You’ll need buy-in from the other members, so you should convene a meeting to discuss it. This step is similar to the first one—assessing the implications—only now you’re doing it as a group.
In addition to discussing the implications of a new member, existing members will also need to agree on the capital contribution that the prospective member will make and decide what percentage of ownership the new member will receive. They will also need to define what percentage of profits and losses new members are entitled to and responsible for. Keep in mind that you don’t have to allocate profit/losses in a way that is proportionate to the ownership stakes.
It can be very difficult to remove members from the LLC, so it’s important to vet prospective members. Conduct a background check. Talk to former business associates and investigate previous ventures in which they were involved. You’re giving up a piece of the most valuable thing you’ll ever own. Therefore, verify, don’t trust, and scrutinize every detail.
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Once you’ve met with the other owners, do your due diligence and come to an agreement on terms, it is time to prepare an amendment to your operating agreement, vote to approve that amendment and file the proper paperwork with the state and federal government agencies.
When you’re amending your operating agreement, you want to include pertinent details about the new member: name, address, capital contribution, percentage of profits and losses, voting rights and management responsibilities as well as those of all existing members. After all, when you add a new member to the LLC, it will dilute the shares of existing members, and you’ll have to define an agreed upon way to see who gives up what.
When it’s time to vote, you should convene another meeting with all existing members. You’ll want to track everything in the minutes and keep a written record of which members voted yay or nay. This can come in handy in the future if members need to settle disputes.
If the minimum vote threshold is met, all members—existing and new—should sign the amendment. Because operating agreements aren’t filed with the state, you won’t need to submit the amendment to a government agency.
Depending on your state, you might have to also amend your articles of organization. This is the document you filed with the state to create your LLC. In many states, the articles list the names of LLC members with management authority. If this is the case in your state, you’ll need to file an amendment to the articles of organization when you admit a new member.
For forms and instructions specific to your state, visit the website of your state’s secretary of state. Filing fees aren’t expensive, usually somewhere in the neighborhood of $25 to $50. Again, while you don’t need to hire a lawyer, it’s not a bad idea considering the weight of the situation.
Depending on your circumstances, you may have to submit a few forms to the IRS. If you’ve been operating a single-member LLC taxed as a sole proprietorship, you’ll now be a multimember LLC taxed as a partnership. You’ll need to apply for a new employer identification number (EIN), even if you had an EIN for your single-member LLC.
Multimember LLCs don’t need a new EIN when they take on new members because they are already taxed as partnerships. Talk with an accountant about whether you should file any additional forms and how your new member might impact your future tax filings.
