Q: I need to add 6 members to the LLC – is there any way to do that?
Thanks to one of our customers in Arizona for this question! If you’ve already formed your LLC by filing paperwork with the Arizona Corporations Commission, you can only add new members with an amendment. What’s more, if you’re adding members to a single-member LLC, this will have tax implications, which means you’ll also have to follow-up with the IRS. Here’s how it all works:
1. Comply with Arizona Law
Before filing any paperwork with the state, you must first make sure your process of adding new LLC members abides by Arizona’s Revised Statutes. According to AZ Rev Stat § 29-3401, you can only add a new member or members to your LLC if you have consent from all other members.
How do I distribute membership interest to new member(s) of my Arizona LLC?
New LLC members are typically required to make a contribution to the company in exchange for an ownership stake and the benefit of membership interest paid out as distributions. In Arizona, a person is not legally obligated to make a contribution (financial or otherwise) or receive distributions. However, doing so is common practice. Your company will need to determine an arrangement that all current members and new members agree to.
When deciding how to draft contracts and distribute ownership percentages, it’s a good idea to consult the expertise of a business attorney.
2. File an Arizona LLC Amendment
Arizona requires all LLCs to indicate their “management structure” when filing Arizona LLC Articles of Organization. Whether your LLC is run by its members or by managers, you’ll have to include member information in your articles. When this information changes—as it does when adding new members—you must submit Arizona Articles of Amendment to the Arizona Corporations Commission (ACC), and pay the associated $25 filing fee.
What do I need to include in my Arizona LLC amendment?
When filing an amendment to add new members to your Arizona LLC, you must include the following information:
- Name of LLC
- Names and addresses of any new members
- Signature of an authorized person or entity
If filing via mail, you’ll notice the paper form also includes sections for other changes to your LLC (like name change or address change), but you can ignore those sections—unless you need to make changes to your company name or address, as well. Assuming you’re only adding new member or manager information, you’ll only have to fill-in sections #1, and #3 or #4.
How do I submit Arizona LLC Articles of Amendment?
You may submit your articles of amendment online, by mail, in person or via fax.
Online: ACC eCorp
By Mail or In Person:
Arizona Corporation Commission – Examination Section
1300 W. Washington St.
Phoenix, Arizona 85007
Via Fax: 602-542-4100
For more on amendments, see How to File an Arizona LLC Amendment.
Can I add new members to my LLC when filing my Arizona Annual Report?
No. Though some states allow business owners to update member information in an annual report, Arizona requires an amendment. This is because member information is listed in your articles of organization, and your articles can only be changed by filing an amendment.
That said, if you need to update a member’s address, you can do so by submitting an LLC Statement of Change of Manager or Member Addresses for a $5 filing fee. (Need to update an existing member’s name? That will require an amendment.)
3. Update your Arizona LLC Operating Agreement
Whenever any of the information contained in your Arizona LLC Operating Agreement changes, you’ll need to update it. This is an important step in the process of adding a new member, since your operating agreement is a legally binding document that may be required for crucial aspects of your business: receiving loans, negotiating deals, or even defending your company in a court of law.
How do I update my Arizona LLC Operating Agreement?
Because an operating agreement is an internal document that can be specified to fit the needs of a particular business structure, the process isn’t the same for all companies across the state. When update your company’s operating agreement, you should consult the operating agreement itself.
4. Contact the IRS
You’ll need to contact the IRS if you received your EIN as a single-member LLC (SMLLC). For tax purposes, an SMLLC is considered a disregarded entity by default. If you add another member to your SMLLC, you’ll then have a multi-member LLC, which is taxed as a partnership by default. In other words, the IRS needs to know about your new LLC members because it changes your tax status, and requires you to apply for a new EIN.
Do I need I new EIN if I add new members to a multi-member LLC?
Nope. Your LLC should already be on-record with the IRS as a multi-member LLC with “partnership” tax status (unless you elected to be taxed with a different entity classification). If you’re already being taxed as a partnership, adding new members won’t change that.