There are many different reasons you may want to add a member to an LLC.
Sometimes the new member has deep pockets and can contribute to the business financially. Or the new member has valuable connections, skills, or training that you can’t find anywhere else.
Whatever the reason, there often comes a time when it is in the best interest of the business to bring on a new LLC member.
Here are some important things to keep in mind if you are thinking about bringing a new LLC member onboard:
The Operating Agreement.
If your LLC has an Operating Agreement (which it should!), it most likely describes how and when a new member can be added to the LLC. The Operating Agreement may require the majority or unanimous consent of the current members before a new person is admitted as a member and may put additional rules or restrictions on how and when a new member may be admitted to the LLC.
Your State’s Laws.
If your LLC does not have an Operating Agreement, or if the Operating Agreement does not address new member admissions, then the laws of your state will control the methods by which you can add a member. Colorado, for example, requires the unanimous consent of the existing members.
You may need to notify the IRS or apply for a new EIN if the LLC tax status will change as a result of the new member.
It is important to document and record the consent of the existing members to the new member’s admission. This can be in the form of Meeting Minutes, a Resolution, or a Consent to Action. Again, you will need to check your LLC’s operating agreement and the laws of your state to determine the proper steps to take. Some operating agreements may require a formal meeting to be held, and you may need to send the other members advanced notice of the meeting. On the other hand, some operating agreements permit a written Consent to Action in lieu of a formal meeting.
Accepting the New Member.
Depending on the circumstances, you may need the new incoming member to sign an LLC Membership Admission Agreement to formalize the transaction.
You may also need to amend the LLC’s operating agreement to reflect the new member’s ownership and other issues that may come up. If your LLC did not already have an Operating Agreement, now is definitely the time to get one!
Amending the Articles of Organization.
Once the new member has been formally admitted into the LLC, you may (depending on your state) need to amend the LLC’s Articles of Organization to add the new member’s name to the LLC’s organizational documents.
The exact steps and process for adding a member to an LLC will depend on the state where the LLC is registered and the specific circumstances of your situation. That’s why it is always best to work with an attorney if you are considering adding a member to your LLC. Denver small business attorney Aiden Durham is here to help. Contact me today to get started.