How to Form a Multi-Member LLC

Forming an LLC is a major step in starting a business, and doing so with partners requires a bit more paperwork than being on your own.  It is not too difficult if you follow a few basic steps.

 

Registration

 

You will begin with a form called the articles of organization that requires some basic information.  It lays out your LLC and the structure of it, included in it is:

 

• Name and address
• Purpose
• The registered agent’s name and address
• Names and addresses of the involved persons for the LLC

 

An important detail about multi-member LLCs is the requirement of all members to be listed.

 

Your registered agent is a person or business you will hire to help you along the way.  Sometimes this is a business lawyer or registered agent company, however you may have your business itself fill the role if it has an address.

 

Operating Agreement

 

The more members you have, the more complicated the processes become.  However this can be avoided by implementing an operating agreement, which will make daily operations much easier.  These agreements are for your personal use in establishing the rules within your business.  Without an operating agreement, your business is required to follow state-established rules that may not be the best fit for your company.

 

Operating agreements will outline the responsibilities of everyone in the business; therefore it is more useful with multi-member LLCs.

 

• Structure: The placement of individuals within the management system is defined in this section. This also defines whether decisions are made in-house or if managers are hired from outside.
• Responsibilities: The division of responsibilities is laid out in this section, which is typically done based on the strengths of the members involved.
• Membership: This lays out the division of ownership. It is important to note that this does not have to be an equal distribution.  This section can also be used to explain the process of adding and subtracting members.
• Financial Division: This section describes how profits are distributed, how shares will be dispersed, and whether or not your LLC is a flow through tax entity or a corporation.

 

It is noteworthy to remember that you can change your operating agreement terms, however you must include how this is done within the original draft of the operating agreement.

 

Single to Multi-Member LLC Transition

 

You are able to add members to your LLC if you are currently a single-member LLC.  To start you may create an amendment to your articles of organization if they are filed with the state.  Within the amendment, you will include the new partner(s) name(s), and their responsibilities, rights, and shares.

 

Next, you will contact the IRS to make them aware of the change and your default tax status may change, depending on how you are currently taxed.  You may need to a new employer ID number (EIN).

 

If you have any questions about the process of becoming a multi-member LLC, contact an attorney to help you through the process.