At some point during your business journey, you might want to introduce new members to your LLC. Adding a new member is not complicated, but you must plan ahead for the legal and tax changes that will occur as a result. Here are some of the things that you can expect when you expand your LLC to include new members.
The Steps for Adding a New Member to Your LLC
- Check your LLC operating agreement from when you initially created the LLC to see if there are rules about adding a new member. Even if there is only one current member of the LLC, all of the provisions that were noted about adding someone else must be followed.
- Examine the rules that your state has for LLCs and adding a new member. If you don’t have an operating agreement, this should be your first step. Every state has different requirements for expanding LLCs, so you should check yours to avoid running afoul of them.
- Next, you will need to propose an amendment to the LLC operating agreement that will take into account adding a new member. This amendment will need to include detailed information about the new member, including their name, what financial contributions they are providing to the LLC, their role in the profits and losses of the LLC, the role and responsibilities they will have, their voting rights, and more. Remember that adding a new member will also change the way things are done with current members, so you will also need to update that documentation.
- If you have current members in the LLC, you will need to hold a vote about adding a new member. Most operating agreements and states require a formal vote with unanimous consent before the new owner or member can be added. The outcome of the vote will also need to be signed by all voting members.
- Notify the state that you are in about the change to your ownership. This might also mean that you need to re-submit your formation documents or file Articles of Amendment that reflect this.
- Meet with your accountant before and after adding a new member to prepare for any tax changes that will occur.
Master the Tax Filing Process with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make taxes easily and avoid the most common mistakes. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.
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