How to Add a Member to an LLC

One of the most popular ways to incorporate a business is through an LLC. An LLC is simply an individualized version of a corporation. The main difference between a corporation and an LLC is that an LLC has two separate categories of individuals who share ownership and authority. However, while both have the same effect on the IRS, an LLC will only be treated as a legal entity for tax purposes.

• When you incorporate, you are creating a separate entity from your personal assets. In order to do this, you must go through a formalized operating agreement, which details all of the responsibilities and entitlements of the business. Once you have decided on the specific operating agreement, you will need to go through the process of registering your company. Once your company is registered, you will be required to obtain a tax identification number from the IRS. This tax identification number will allow you to file federal, state, and local tax returns, as well as create payroll reports and manage business finances.
• If you want to incorporate as a sole proprietorship, a general partnership, or a C-corporation, your business entity will be considered separate from your personal assets. However, an LLC does not have the same independence of personal liability that comes with these types of ownership structures. One important consideration when incorporating an LLC is that your liability may now extend to your personal assets. In some cases, this may result in personal bankruptcy, which severely affects your ability to retain your business and prevent personal bankruptcy proceedings. To avoid this, you should always select an LLC as your new business entity, even if it means you will have to pay a higher tax rate on your corporate income. Also, incorporating an LLC immediately allows you to take advantage of certain early-loss losses, but an in-depth look at your existing business structure should be undertaken before incorporating an LLC.
• Creating an operating agreement is just as important as creating your Articles of Organization, and you should take time to draft a complete operating agreement before incorporating. A complete operating agreement spells out all of the responsibilities and entitlements of your LLC, and lists each member’s personal liability for debts, liens, and errors and omissions. The operating agreement must be submitted to the Arizona Corporation Commission along with the Articles of Organization. All Operating Agreement additions must be filed with the Commission by the end of the thirty-first day after the effective date of the amendment.
• You should consider adding a new owner when you first incorporate if you do not already own more than fifty percent of the shares of the business you are involved in. In order to incorporate an additional owner, you must file Articles of Organization with the Commission. Once the Articles of Organization have been filed with the Commission, you will have one year to complete them and file the annual reports. If you are adding a new owner, the additional owner must also sign an additional charter or article of Organization, indicating that he or she has joined the LLC and is jointly responsible for all of the business operations. Once all of these documents are filed with the Arizona Corporation Commission, you will be required to provide the additional owner with a copy of the Operating Agreement and all of the Articles of Organization.

The most common way of adding partners to an LLC is through a ‘additional member’ clause inserted into the Operating Agreement. In many states, an additional member cannot be added until two years have passed from the incorporation date. However, if an owner joins the LLC on a particular date, such as shortly before the effective date of the amendment, there may be a waiting period before the addition of the partner. If you have any doubt about how to add a member to an LLC, you should contact a business lawyer who can assist you in completing the necessary paperwork.