In business, it’s often the inability to scale that holds us back. It could be a lack of resources, skills, or a partner that shares a belief in your vision.
After you’ve registered your LLC, started to operate, and finally stabilized your business, you’re entering the next stage in running and maintaining an LLC. Eventually, many LLCs need to expand, which brings us to the question, “Can I add members to my LLC?”
The answer’s yes. But first, you need to know the rules.
For example, adding a member to a multi-member LLC usually requires a change to your operating agreement and the consent of the other members, and sometimes a state filing.
A single-member LLC is simpler since there’s no vote, but adding a member changes how the IRS taxes the business, and some states expect you to update your records.
Here’s how to add a new member to your LLC.
How to add a member to an LLC: steps at a glance
- Review your operating agreement for its admission rules, or your state’s default rules if you don’t have one.
- Agree on the new member’s contribution, ownership percentage, voting rights and role, and get the required approval.
- Amend your operating agreement and have the members sign it.
- File an amendment or update your annual report if your state lists members or managers.
- Update your IRS filings: a single-member LLC that becomes multi-member is taxed as a partnership and generally needs a new EIN.
- Update bank signers, licenses and membership certificates.
What are LLC members?
Members are the individuals or entities who co-own an LLC, each with a set percentage of ownership.
Members can manage the business or play a silent role, receive profits and losses, inspect company records, keep voting rights, and decide how to run the business.
Why should you consider adding members?
There are several reasons you might add a new member to your LLC.
- To expand. New members can bring financial investment, enabling you to grow your business and avoid high-interest bank loans.
- To add expertise. A new member can bring skills, knowledge, and expertise, such as social media marketing, branding strategies, or accounting.
- To share the load. With more members, the financial and management responsibilities are shared among more people.
However, be aware that while new members are often helpful, they also reduce your percentage of profits and get a say in running your business.
How to add members to your LLC
Adding a member to your LLC isn’t complicated, but you need to know which steps to take so the process is smooth and follows your operating agreement and state laws.
Your aim when adding a member is to follow any formal procedures that keep the LLC’s legal protection intact and avoid internal disputes among the original owners.
Review your operating agreement (if you have one)
Most states don’t require a written operating agreement, but if you have one, review it and amend it when you add a new member.
An operating agreement usually sets the procedure for admitting a new member, as drawn up by the original owners. Review it to make sure you follow those procedures.
Amending the operating agreement means adding the new member’s name, capital contribution, position and duties within the business, and percentage of ownership. Our guide on how to amend an operating agreement covers the drafting and signing.
Check what your state law says
LLCs that don’t have an operating agreement must follow their state’s default rules when adding a new member. In many states, that means every existing member has to consent.
State filing rules vary too. Many states don’t track members at all. Others list members or managers in the articles of organization or the annual report, so you’d file an LLC amendment or update your next report.
You can find your state requirements on your Secretary of State’s website or on your state’s LLC page.
If you’re a single-member LLC
Many single-member LLCs don’t have operating agreements since there’s only one member. If that applies to you, you can follow your state laws or take the more advisable option and create an operating agreement with the new member when they join.
No voting necessary
The upside of a single-owner LLC is that there’s no vote required when you add a new member. But there are formalities and tax changes that need your attention.
Tax considerations
Single-member LLCs are taxed as disregarded entities by default, which works like a sole proprietorship for LLC taxes. When you add a member, the LLC is automatically taxed as a partnership unless you elect to be taxed as a corporation. You don’t file a form to become a partnership; the change happens on its own, and the LLC starts filing Form 1065.
The new partnership generally needs its own Employer Identification Number (EIN), even if the single-member LLC already had one. The IRS explains when a new EIN is needed. You can get an EIN for free from the IRS website, or use the Tailor Brands EIN service if you’d rather not handle the application.
Consult with a tax accountant to understand the tax implications of adding a new member, including how the switch affects the year you add them. The differences are covered in single-member vs. multi-member LLC.
Notify your state
If your state lists members or managers on the public record, update it by filing an amendment or through your next annual report. Your Secretary of State’s website explains what it requires.
If you’re a multi-member LLC
Adding a new member to a multi-member LLC takes more coordination than a single-member LLC. Unless your operating agreement says otherwise, most state laws require all existing members to consent before a new member can join.
Inform the other members and vote
When adding a new member to your multi-member LLC, the main consideration is that current members approve the terms under which that member will join. For instance, the members should agree on the new member’s percentage of ownership, duties, and share of profits and losses.
LLCs are flexible, though. Your operating agreement can let you admit a new member by a majority vote and give them an ownership interest that’s larger or smaller than existing members’.
Once the members agree, your next step is to amend the operating agreement to include the new member, their percentage ownership, and duties. If the new member is buying an existing member’s stake instead of joining with new money, see transferring LLC ownership.
Decide on the new member’s role
Adding a member is a good time to decide how the LLC is managed. Your new member can be active or silent, and the LLC can be member-managed or manager-managed.
Active members bring a skill set to an LLC that was lacking before their arrival. Silent members invest to receive a percentage of the LLC profits and take no part in the daily duties, though they may still have voting rights. Whichever you choose, outline and agree upon it in your operating agreement.
In a member-managed LLC, members share management and fulfill roles that suit their skill sets. In a manager-managed LLC, one or more managers, who can be members or non-members, look after daily operations. Owners who want a more passive role often choose this option. See member-managed vs. manager-managed LLC for the trade-offs.
Notify your state
States don’t ask you to submit an operating agreement, so you can amend it without filing anything. Your articles of organization are on the public record, though, so if they list members or managers, file an amendment with your Secretary of State’s office. Check the fee and whether you can file online.
States don’t always include a certified copy of your amended articles, so you might pay an extra fee if you need one for a bank or lender.
Update your IRS records
A multi-member LLC already has an EIN, and adding a member doesn’t change its tax classification. There’s no separate form to report the new member. They appear on the LLC’s Form 1065, with their own Schedule K-1, starting with the year they join. If the LLC’s responsible party changes, file Form 8822-B with the IRS within 60 days.
After you add a member
Once the paperwork is signed, update the everyday records too. Add the new member as a signer on your business bank account if they’ll handle money, issue an updated membership certificate if you use them, and check whether any business licenses list owners. If a member leaves later, the process runs in reverse, covered in removing an LLC member.
Ready to grow your LLC?
Adding a member to your LLC is an exciting time and a reason to celebrate. Follow these steps and it should be a smooth transition that helps your business scale and reach its potential.
If you’re unsure at any stage, contact a lawyer or tax accountant for further advice.
FAQ
Yes. Follow your operating agreement’s admission rules, or your state’s default rules if you don’t have one, then amend the agreement and update any state and IRS records.
Under most state default rules, yes. Your operating agreement can set a different threshold, such as a majority vote, so check it before you hold the vote.
Generally yes. Adding a member turns the LLC into a partnership for tax purposes, and the IRS treats that as a new taxpayer that needs its own EIN.
No. A multi-member LLC is taxed as a partnership automatically. Form 8832 is only needed if you want the LLC taxed as a corporation instead.
Only if your state lists members or managers in your articles of organization or annual report. In that case, file an amendment or update your next report.