How to Add an LLC Member to a Limited Liability Company

Adding a member to an LLC involves several steps and it is important for any limited liability company to do it correctly. Mistakes can be disastrous. The process can vary and be very simple or extremely complex depending on each circumstance. However, here is the general 4-step process:

Step # 1: Determine if the new person is eligible to be added as an owner

The good news is that the laws for this type of legal entity are very lenient when it comes to membership admissions matters. There are no limitations or conditions as to the residence, citizenship, location, affiliation or any other characteristic of a member. Also, members do not have to be individuals. They can be corporations, partnerships, trusts, and even other limited liability partnerships.

However, the laws also allow an LLC business to impose its own set of restrictions, exclusions, and processes for the admission of members. Because of this, it is very important that you first consult the company’s operating agreement and review the membership-related provisions in detail for conditions, limitations, and other requirements. The first step is to make sure that the specific person qualifies for admission in the first place.

If the LLC is taxed under the S corporation structure, it is also essential that membership admission does not disqualify your S election. Many of the S election requirements are directly related to the number and type of members. of a company.

Step # 2: Get approval from members and go through all the formalities of the process

In most cases, the operational document will require existing members to obtain a certain percentage of votes. This is usually done at a homeowners meeting or by using a standard government form document called Written Consent.

You must strictly obtain all voting approvals and meet any other required conditions, and most importantly, you must document such approvals and actions in written consent documents. Submit these documents with the rest of the LLC’s official documentation.

Step # 3: Have a written membership issuance agreement documenting the member’s admission

This document does not have to be long and complicated if you have a simple transaction in which a member is admitted in exchange for providing a cash contribution to the LLC. This document is generally called the Membership Issuance Agreement or Member Subscription Agreement. For most small businesses, it is a simple one page document.

However, if there are other terms of the deal involved, then your issuance agreement must legally address them appropriately. A common example is if the new member’s property is subject to vested rights or promises in the future. I strongly recommend that you use an attorney to represent you or the LLC in these cases, as the potential consequences of incorrectly addressing additional matters can be significant. I have seen businesses go under as a result of disputes between members that could have easily been avoided.

Step n. # 4: make sure the new LLC member agrees to the operating agreement

The operating agreement is so vital. It not only addresses how the business will be operated, but also defines the rights and obligations of each owner.

When you admit a new member to an LLC, that person must sign a written document agreeing to be bound by the operating agreement and all of its provisions. Hopefully your operational document will impose this as a condition for completing a member admission transaction (everyone should have this). Regardless, this should be a mandatory step at all times.