Many small business owners organize their business as an limited liability company because they don't have to worry about incorporating or paying taxes.If you want to add a new member, you'll need the consent of all other members, as well as amendments to your operating agreement and articles of organization.
Step 1: Your operating agreement should be reviewed.
Information about the roles and responsibilities of members, how decisions are made, and how profits and losses are allocated are included in an operating agreement.Changes in membership should be dealt with in the operating agreement of your company.You will need to follow this procedure to add a member if it does.If you don't have an operating agreement, an attorney can draft one for you.If you want to draft the document on your own, many states have fill-in-the-blank forms that you can tailor to fit your needs.
Step 2: Check your state's act.
If you don't have an operating agreement, the law of the state where you registered your limited liability company has default rules that outline the proper procedure for adding a new member, and the documents that must be amended or filed by law.If the new member is identified as a member in the original Articles of Organization, then they can be added in Arizona.
Step 3: Meet the other members.
Before you hold a vote on a new member, you should have a meeting with your partners.At the meeting, you'll want to demonstrate the qualifications, financial resources, and general business experience of the potential new member.The other members may want to interview the member candidate if they don't already know her.They will want to discuss and debate the advantages and disadvantages of a new member after the interview.The new member's capital interest and the value of the capital investments made by the existing members need to be agreed on.If the business is dissolved, the new member could receive a disproportionate amount if the capital interests of existing members aren't updated.
Step 4: The new member should be voted on.
Unless the operating agreement provides for approval by less than unanimous consent, state law requires a unanimous vote by all members to add a new member.When you sit down with the other members to vote, make sure you document in writing whether each member approves or disapproves of adding a new member.All members should be given advance notice of the meeting to vote on a new member.
Step 5: You should amend your operating agreement.
The operating agreement needs to be updated to account for your new member.The sections that cover the percentage interests of each member in the company, their capital contributions, the allocation of profits and losses, and the voting power of all members need to be updated.The interests of existing members in profits, losses, and distributions will be affected by a new member acquiring an interest in the company.Changes need to be made to the operating agreement to deal with members' economic interests.
Step 6: You should amend the articles of organization.
In some states, you have to amend the articles of organization to reflect the addition of a new member.If a new member gains 20 percent or more of the percentage interests in the company, Arizona requires you to amend the document.Your state law will have a deadline for an amendment to be filed.You have 30 days to file your amendment with the state of Arizona if you add a new member.You will need to amend your articles of organization if you are changing the structure of your business.
Step 7: An assignment of membership agreement needs to be drafted.
The interest you are transferring to the new member is outlined in the contract.The agreement is similar to a bill of sale.The standing members are selling a portion of their interest to the new member as the ownership interests are being changed.
Step 8: The resolution should be drafted by the members.
A written resolution to add a new member should be signed by everyone in the group so there is a record of everyone agreeing to the change.
Step 9: The Secretary of State can file the amendments.
If you have to amend your articles of organization, you need to file the amendment with the Secretary of State in your state.The operating agreements don't have to be filed with the state.Some states allow you to file your operating agreement.You should file an amendment if you took advantage of this option.If you are required to file paper forms, you should check with your secretary of state's office to see if you can file the amendments online.You will have to pay a fee to file an amendment.The secretary of state or business filing agency in your state can give you the exact fees and what they include.If the fees don't include a certified copy, you need to find out how much it will cost so you can get one.
Step 10: Determine if you need a new EIN.
The EIN is the tax number for your business.If your company's ownership changes, you need a new EIN.You will need to get a new EIN if you were operating as a single member.You don't usually need to get a new EIN if you already have a multi-member company.
Step 11: If necessary, file the election form with the IRS.
You must file this form to let the IRS know if there is a change in the way your company is classified.The IRS will classify your company according to the default rule if you don't make a different election using Form 8832.By default, multi-member limited liability companies are treated as partnerships for tax purposes.If you want your company to be treated as a corporation for tax purposes, you need to file Form 8832.If you have at least two members before you add a new member, the income tax status is not changed and there is no reason to notify the IRS.
Step 12: If necessary, register a name change with state and federal authorities.
You change the name of the company when you add a member.Suppose you and your spouse ran a business.Your son just graduated from business school and wants to join the family business.You want to change the name of the company to "Sasquatch and Son Ice Cream, LLC" when you add him as a member.To register the name change, you would have to file documents with the state and the IRS.If you want to change your name with the IRS, you need to send notice to them at the address where you filed your return.A partner of your business must sign this notice.To change your name with your secretary of state, you'll need to fill out a form and pay a fee, which could be as much as $200.