Remember, an LLC is a clear-cut business entity that protects its owners from personal indebtedness. Following formal procedures and keeping good records helps to maintain that protection and to avoid future disputes among the owners .
Follow these steps for a politic action when you add an owner to an LLC.
1. Understand the Consequences
Before you add a new LLC extremity, you should fully consider both the benefits and the electric potential consequences. A modern owner can contribute a great deal to an LLC but will besides diminish the share of profits that go to the original owners. In a member-managed LLC, a new owner will besides add another spokesperson to the decision gain process. And once person has an ownership interest, it may not be that slowly to get rid of them if things don ’ triiodothyronine workplace out as you expected .
If you have a intestine feel that the newly owner is person you ’ d rather not have as a business collaborator, consider whether there is another way to accomplish your occupation goals .
Adding another owner can besides have tax consequences. If you own a single-member LLC, you ’ ll nobelium long have the option of being taxed as a sole proprietor—you will alternatively be taxed as a partnership or pot .
To make certain you ’ re amply mindful of the affect of adding a new LLC penis, it ’ second wise to consult with a clientele lawyer .
2. Review Your Operating Agreement
Your LLC ’ s operating agreement probably describes the procedure you must follow to add a new member, including the way the membership must be voted on. It is authoritative to follow the procedure described in the agreement because it helps to show that your LLC truly is an autonomous entity that follows its own rules .
If you don ’ triiodothyronine have an operate agreement, or if your operate agreement doesn ’ metric ton hash out adding fresh members, you must follow the procedure described in your state ’ second limited liability laws. In some states, you must dissolve and then re-form the LLC if there is any change in possession .
If your LLC doesn ’ deoxythymidine monophosphate have an operating agreement, immediately is a dependable clock time to get one. An engage agreement is essential for multi-member LLCs because it spells out the rights and responsibilities of the owners and their respective shares of the business and its profits and losses. It is far easier and cheaper to draft an engage agreement than to try to resolve these issues when there ’ sulfur a challenge among the owners.
3. Decide on the Specifics
once you understand the procedure for adding a raw owner, you must determine the specifics of your agreement. LLCs are very elastic in their possession structure : for exercise, a person can own a certain share of the commercial enterprise, but may be entitled to a unlike share of profits .
Discuss ownership percentages with the existing LLC members equally well as the prospective new extremity to arrive at an agreement .
4. Prepare and Vote on an Amendment to Add Owner to LLC
once you have decided how to social organization the new owner ’ randomness pastime, you should prepare an amendment to the function agreement to add the raw owner to the LLC. The amendment should list the new owner ’ second name, any capital contribution that the modern owner is making, the owner ’ s percentage interest in the company, and the percentage of profits and losses that can be allocated to that owner .
The members should then formally vote on the amendment in the way described in the operational agreement. Document the vote in your LLC ’ s minutes and/or with a resolution, and have all the LLC ’ s members – including the fresh one – sign the amended operate on agreement .
Keep the better operational agreement at your place of business with your other important occupation documents .
5. Amend the Articles of Organization (if Necessary)
When you formed the LLC, you filed articles of organization with the state. In some states, you may have to file a form amending the articles to add a new extremity. In other states, there is no LLC member data in the articles, and no amendment is necessary .
You can check the requirements for your state of matter by contacting the department of state agency creditworthy for business filings ( normally this is the Secretary of State ).
6. File any Required Tax Forms
If you ’ ve been doing business as a single-member LLC and using your social security number as your federal tax identification numeral, you ’ ll need to obtain a federal employer identification number ( EIN ) when you become a multi-member LLC. You can obtain an EIN for detached by filling out a kind on the IRS web site .
If your LLC has been taxed as a sole proprietorship or partnership in the past and you now want to be taxed as a corporation, you ’ ll need to file extra forms with the IRS to elect corporate status. A lawyer or tax accountant can advise you on the best tax condition for your LLC .
Adding an LLC owner means taking on another business partner, so it ’ south crucial to think things through before you act. once you ’ ve made your decision, adding a new penis is just a count of following your operating agreement ’ s procedures, creating a formal record of the modern possession, and filing any necessitate documents with the state .