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TABLE OF CONTENTS
Business is booming, but there are only so many hours in the day. You could really use some help managing, operating, and furthering the core functions of your business activities. Once you've found someone who values what you do and is ready to take on the challenge, you'll need to make it official.
Let's learn how to add new members to your LLC in five simple steps. Then, we'll go over the pros and cons and answer some common questions.
Your operating agreement is designed to outline how your business can run most efficiently, and it should also include information on how to add a member to your LLC. Not all states require your LLC to have an operating agreement, but you can get started easily if the guidelines are in place. If you do have this document, give it a thorough inspection to see if the procedure for adding members has been outlined.
If so, there may be some initial actions to take. Do you need a unanimous vote from existing members to add members to LLC? What percentage of the company can be sold to a new member? It's important to follow whichever procedures are outlined in your operating agreement — first of all, because it functions as a legally binding document, but also because it shows that your business is capable of following its own rules and adhering to its own terms.
Now…what if you don't have an operating agreement? Or, what if your agreement doesn't list any specific terms pertaining to the addition of new members? In most cases, you'll need to instead follow the rules set out by your state's limited liability laws. In some states, this could mean dissolving your current LLC and forming a new one to legally change the ownership structure.
Referencing your operating agreement is the best way to start the process and determine exactly how to add new members or owners. If your business doesn't have an agreement, Bizee provides access to a lawyer-approved template for our Gold and Platinum Package members that will cover all of these important terms and details. It might also be beneficial to refresh your memory on the specific workings of LLCs as you move through the process.
If you're asking, "how do I add a partner to my existing business?" you should be considering the terms of your new arrangement as well. While we're laying out each step of the process, this particular step is crucial for adding members to LLC entities. Adding a new partner or member to your business means giving them direct access to your business, and as such, there must be legal terms that all parties agree to.
In most scenarios, adding members to LLC entities involves having the new member bring a capital contribution to your business. This may be a cash investment, or it could be in the form of property or specific services that enable your business to expand into new markets. Whatever the contribution, setting terms and defining how profit will be shared amongst each member is essential.
LLCs use percentages to reflect ownership interest. Perhaps you've heard of agreements where one partner's ownership interest or percentage share is 51%, while the other partner is allocated the remaining 49%. This is done to give one owner a controlling stake or final say regarding business decisions.
You can also change an LLC member's percentage share at a later date if needed. When adding members to LLC entities, you might find that a similar arrangement works, such as allocating a percentage stake in the company that determines profit share. Or, you might need to define alternative terms depending on the level of involvement or capital contribution your new members bring to the table.
All of these terms should be outlined in your operating agreement, which will need to be revamped after altering the ownership structure.
