Adding members to a single-member limited liability company (SMLLC) is a relatively simple task. But there are several steps to consider:
Can I add members to a SMLLC?
Yes. You can add members (or owners) to a single-member LLC. But it’s important to know that adding members to an SMLLC effectively changes your business’s organizational structure, which has some additional implications.
Are SMLLCs & multi-member LLCs taxed differently?
In short: yes. Typically, single-member LLCs are taxed as disregarded entities, and multi-member LLCs are taxed as partnerships. While either an SMLLC or a multi-member LLC can elect to be taxed as a corporation, only an SMLLC can be considered a disregarded entity.
How do I change from SMLLC to multi-member LLC?
Changing from an SMLLC to a multi-member LLC requires consensus among LLC members (old and new), as well as updating several important forms, including:
- Articles of organization: Your articles of organization likely require you to specify whether your LLC is single-member or multi-member, and some states require member names. If either of these things is true in your state, you’ll need to amend your articles of organization. This is usually done by filing LLC articles of amendment, but you might want to check with your secretary of state for the proper procedure.
- LLC operating agreement: Your operating agreement includes all member information, so if you’re adding or changing any member names, addresses, or ownership stakes, you’ll need to update your LLC operating agreement. (The amendment process is usually specified in the operating agreement itself.)
- EIN filing: If your SMLLC already has an EIN, you’ll need to file Form 8832 to update your tax classification with the IRS to ensure your multi-member LLC is taxed as a partnership and not a disregarded entity.