How to Add Member to LLC

After your business is operational, you may wonder how to add a member to an LLC. As your company develops and expands, you could add a new owner to diversify ownership, increase capital and resources, or reward a high-performing employee. This page explains how to add an owner to an LLC so that you can confidently make changes to your company.

Can I add a member to my LLC?

Yes. The limited liability company (LLC) combines the partnership structure’s flexibility with the personal liability protection offered by having a separate entity. The LLC’s operating agreement typically outlines the procedures for how to add a partner to an LLC. If you still need an agreement, talk to your business attorney about the LLC laws in your state. You might also need to file paperwork to change your tax status and Articles of Organization.

What is an LLC member?

The owners of an LLC are called “members.” An LLC can have a single member or multiple members (a “single-member LLC” or “multi-member LLC”). The members can share the management role as a “member-managed LLC.” They can also assign a manager to handle the day-to-day operations (a “manager-managed LLC”). The LLC operating agreement determines each member’s ownership stake and percentage of profits. 

Consequences of Adding a Member to an Existing LLC

Adding a member to an LLC can give you access to new talent, cash, or relationships. However, it has drawbacks. You’ll want to consider the impact on your management structure and tax filing status.

Adding a partner to an LLC reduces the existing members’ percentage of profits. It can also complicate how management decisions are made. Removing a member is more complicated than firing an employee if things don’t work out.

Adding a new member may change your tax classification. A single-member LLC is treated as a sole proprietorship for federal income tax purposes. When you add a new member, you become a multi-member LLC which is taxed as a partnership. However, both these tax classifications have pass-through taxation, meaning that the business itself isn’t taxed on its profits, just the owners. The difference is that with a multi-member LLC, you’ll also need to file an informational business tax return, just as a partnership would.

If you were a single-member LLC and using your Social Security number as your LLC’s tax identification number, you’ll need to get an Employer Identification Number (EIN) when you add additional members. All LLCs with more than one owner must have an EIN from the IRS.

How to Add a Member to an LLC

Can you add members to an LLC? Yes, but you must follow a specific process. Our business team put together this simple list of steps.

Step 1: Revisit your operating agreement

When forming the LLC, the original owners execute an operating agreement to govern the business’s internal operations. The operating agreement usually explains how to add a new member to an LLC, but most states don’t require them. If you have an operating agreement in place, follow the process it lays out. If not, you’ll need to consult your state’s laws to learn how to add a member to an LLC in your state. 

Step 2: Get approval from the other members

Remember that a new member will alter how you manage your business and it’ll reduce the existing members’ ownership. The existing members can vote on the new member’s capital contribution, percentage of ownership, and share of profits. Ideally, the operating agreement will provide guidance on any voting. Unless required by the operating agreement or state law, the owners can approve a distribution that isn’t proportionate to the size of ownership stakes.

No matter the size of your business, it’s a good idea to thoroughly vet the potential new member with a reference and background check.

Step 3: Update your operating agreement to finalize the deal

After the members vote for the addition, you’ll update the LLC operating agreement to reflect the new ownership structure. The terms of your operating agreement may require a vote to amend it. If you’re wondering how to add officers to a LLC, you may need a unanimous or majority vote and an operating agreement amendment. If your state requires LLCs to file their operating agreement, you should file the updated version.

Step 4: File an amendment to your Articles of Organization

When you started your LLC, you filed Articles of Organization (or a similarly named document) with the state government. Many states require the records to contain each member’s name and address. You should check your state’s requirements to see if you need to file Articles of Amendment to document the addition of the new member. Be sure to pay attention to any deadlines.

Should you need to file an amendment to your Articles, our amendment filing service can handle it for you.

Step 5: File tax documents

When you run an LLC as a single owner, you file taxes as a sole proprietorship, meaning you won’t need a separate tax return for the business. Adding an owner changes the way you’ll file taxes. You’ll now be a multi-member LLC and automatically be treated as a partnership for federal tax purposes. LLCs with multiple members must file a separate information federal return for the LLC, Form 1065. Then each LLC member reports their share of the profits on Schedule K-1 and attaches it to their own personal federal tax return.

As we said earlier, if you’ve been operating as a sole proprietor and using your Social Security number as your federal tax identification number, you’ll now need to apply for an EIN for the LLC. 

How We Can Help

The process for an LLC to add a member can be complicated. It requires you to research the law and file paperwork. Our team is here to help you stay informed and in compliance. Start your LLC using our LLC Formation Services, and we’ll guide you through the formation procedures. Sign up for our Worry-Free Compliance service, and we can file up to two amendments a year for your LLC.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.