Q: I need my LLC operating agreement changed to two members. Can you help with this?
Thank you to a client from Tennessee for that great question! Many of our clients ask us about the logistics of adding new members to an LLC, so we wanted to address this topic in a blog post. As long as all existing members of your LLC are in agreement, the process to add a member to a Tennessee LLC is pretty simple. You’ll simply amend your LLC operating agreement and issue new membership certificates. We’ll walk you through it.
1. Consult your Tennessee LLC operating agreement.
According to TN Code § 48-249-501, the members (owners) of an LLC get to decide whether and how they will admit new members. Your LLC’s process for admitting new members should be covered in your Tennessee LLC operating agreement. Unless your Articles of Organization or operating agreement specify otherwise, a new member can only be added with the unanimous consent of all existing members.
2. Amend your operating agreement.
Next, follow your operating agreement’s policy for how it can be amended. This may vary depending on the rules you’ve agreed on for your LLC, but typically, amending your operating agreement looks like this:
- Hold a meeting of all members
- Draft a member resolution to add a new member
- Hold a vote
- Pass the resolution (with the approval of all members)
- Keep the operating agreement amendment with your records
Your operating agreement amendment should include the new member’s name and address, their membership interest and initial contribution, and the new membership interest percentages of the other LLC members.
Obviously, if you are currently the only member of your LLC, you don’t need to hold a formal vote to pass an amendment. You can simply make the necessary changes to your operating agreement.
Do I need to amend my Articles of Organization?
No. The Tennessee Articles of Organization don’t require you to list members’ names, so you don’t need to amend this document when you add a member to your LLC.
3. Issue membership certificates
Next, you should issue a membership certificate to the new member and to any other members whose membership interest has changed. Membership certificates show the percentage of LLC ownership each member has, similar to stock certificates for corporations.
4. Contact the IRS
If your LLC is changing from a single-member LLC into a multi-member LLC, you will need to change your entity classification with the IRS. That’s because single-member LLCs are taxed as sole proprietorships by default, whereas multi-member LLCs are taxed as partnerships. To change your tax election, you’ll file Form 8832 with the IRS.
5. File your Tennessee annual report
Lastly, when you file your Tennessee annual report, you will need to report that the total number of members of your LLC has changed. However, you will not need to include your members’ names on the report.