Changing Members of an LLC: Everything You Need to Know
Changing members of an LLC requires that you amend your company's formation documents and alert institutions such as the IRS the change in your LLC membership. 4 min read
Changing Members of an LLC: Change in Ownership
A change in ownership will be based on if you are transferring partial ownership or selling the entire business. A buy-sell agreement allows the business owners or partners to sell their stake in the business. A buy-sell agreement is a document included in the Operating Agreement that lays out the step for purchasing a member of the LLC. It will also help address any future problems if either one is deceased or disabled. If you want to add or remove a member of your LLC, you will need to notify certain institutions:
- Banks
- IRS
- Foregin LLC
- Registered Agent
- Other Third Party involved
For instance, your company's bank likely keeps a list of your members, and if you add or remove a member, you will need to alert your bank so that they can update their records. For an ownership change, the first step would be to amend LLC members.
Amending LLC Operating Agreement to Change Members
When you first registered your LLC, your members likely created two important documents: an Operating Agreement and Articles of Organization. If you make a change to your LLC, such as adding or removing a member, you must amend both documents. Knowing when and how to amend these documents is an important part of running your LLC and complying with state laws.
One reason you would need to amend your LLC's documents is if you want to change the name of your company. You first need to register this new name with your state by filing an Articles of Amendment, and then wait for approval before you can start using the name. When changing the name of your LLC, you also need to alert the IRS of your name change.
Changing members of an LLC is another event that requires amending your company's formation documents. To add or remove an LLC member, you must amend your Operating Agreement.
Although you can amend your Operating Agreement internally, you will also need to alert the appropriate government agencies. Check your state's reporting requirements to see if you need to provide notification when changing LLC members. Most states also require that LLCs provide notification if there is a significant transfer of ownership percentage.
You must amend your LLC's Articles of Organization if you appoint a new Registered Agent or change the address of your company. Changing the management or financial structure of your LLC requires amending your Operating Agreement.
In addition to knowing when to amend your formation documents, it's also important to know when an amendment is not necessary. For instance, when an LLC member dies, most people assume that amending the Operating Agreement would be necessary, even though this isn't the case. In some cases, the will of the deceased member will specify how their ownership stake transfer should occur. Usually, however, the Operating Agreement will already have a protocol for handling the ownership stake of a deceased member.
How to Change Members of an LLC with IRS?
To do business, your LLC must have an Employer Identification Number (EIN) issued by the IRS. Before the IRS issues your EIN, you must provide the contact information of an LLC Responsible Party. If the member you are removing is also your Responsible Party, you will need to name a new Responsible Party and file the correct form with the IRS.
The form you will use to change your Responsible Party is Form 8822-B, and you will need to file this form within 60 days of the membership change. You will also need to consider whether adding or removing a member will turn your company from a single-member LLC to a multi-member LLC or vice versa.
The number of members there is in your LLC has tax implications that you must consider. For instance, the IRS treats single-member LLCs as a disregarded entity. Multi-member LLCs incur taxes as a partnership. If you are converting your company to a single member LLC, you will need to submit IRS Form 8832.
Changing Members of a Foreign LLC
Certain states require that you provide a full list of your LLC members and their contact information before you can register your company as a foreign LLC. States with this requirement include:
- Florida
- Illinois
- Texas
It will be your responsibility to make sure the information in your member list is up to date. Failing to keep this information current may cause you to lose your foreign LLC qualification. Usually, you can update your member list in your LLC's required Annual Report. You can also amend your foreign LLC qualification if you need to update your member list sooner.
Legal Support to Change Members of an LLC
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