How to Add a Partner in an LLC
A Limited Liability Company (LLC) will invite a new partner for a variety of reasons. An existing partner may have died or resigned, or may have been removed by the other partners through a "Declaration of Incompetence." The LLC may be growing in its present business, or it may be changing direction in what it does. Both instances may require new talent at the LLC's highest level that can be realized by following a set of rules that govern the addition of new partners.
Other People Are Reading
Instructions
-
-
1
Refer to your LLC's Operating Agreement, which specifies how a person can become a new partner. If your LLC was not organized by an attorney, it may not have the necessary provisions to legally accept new partners. In that case, you'll have to follow the default provisions of your state's LLC statutes that specify how the task is to be completed.
-
2
Calculate the incoming partner's "buy-in" amount. Although it's not a requirement in many LLCs for a new partner to buy into the organization, most do so in order to have an equity vote on matters that count. Once the new partner's buy-in amount is known, you'll also be able to determine his equity share in the LLC.
-
-
3
Evaluate your LLC's tax consequences if, in fact, your new partner does not buy into your LLC. Also consider how he's going to vote on LLC matters without an equity stake. If your Operating Agreement doesn't address this issue then the existing partners must decide on the matter and document their decision in an amendment to the Operating Agreement.
-
4
Document the addition of a new partner by either drafting a new Operating Agreement to supersede the previous one, or adding an amendment to the original Operating Agreement that documents the change. The original agreement will then stay in force but will be modified by that amendment.
-
5
Report the addition of a new partner to your state's Corporation Commission. Depending on the prevailing laws of your state, the filing may be done electronically or it may require a paper submission. Regardless of the method of notification, it must be done within your state's time constraints, or financial penalties may be levied unto your LLC. If your LLC has non-voting investors, they too must be notified in accordance with the provisions of the Operating Agreement or with the state's default provisions.
-
1
Tips & Warnings
The appropriate state agency where your LLC is registered will be called the State Corporation Commission, the Business Programs Division or another agency name that your state has adopted. It will be found on your state's government website but you'll also be able to find it directly by querying your favorite search engine with "Register LLC in 'your State.'"
References
- Photo Credit business partner image by Andrejs Pidjass from Fotolia.com
