How does one add people to a presently operating Partnership?

Question

Have a Partnership (LLC.) with 2 individuals and would like to add two more people to the mix...what forms do I need and do I need to do anything special?

Answer 1

PASTING AND COPYING AN ANSWER I GAVE EARLIER. CLOSE BUT NOT EXACTLY THE SAME.


LLCs have members. You want to add another member to your LLC. Most LLCs should have an LLC or operating agreement (it will be termed one or the other depending on the jurisdiction). In the LLC agreement it will specify whether or not you have certificated or uncertificated membership interests. If uncertificated, you should simply create another piece of paper, signed by the current members and the prospective member stating that as of date X the members of the LLC agree that the new member has joined the LLC. You should also comply with all the requirements in your operating agreement as to the admission of new members. If certificated you'll also need to issue him a certificate indicating the membership interest.

If, like many small businesses, you only filed a certificate of formation and never did a written operating agreement, then you should also do a simple piece of paper and have all persons keep a copy (you'll need to provide it to your accountants, etc., to prove when the new member became entitled to participate in the LLC). Also, if you haven't and this is an important business to you -- you would be well served to hire a small busines lawyer and get an operating agreement. Otherwise you are going to have a terrible headache in the future if you ever have a dispute.

Finally, in terms of rights and privileges, unless the operating agreement specifies otherwise, he will have the same rights and privileges as other members. However, if you are talking about giving him a share of past profits, etc., since LLCs are taxed like partnerships you can not actually do that since you should be paying taxes on earnings every year so those funds go to your capital account. I assume you are using a tax accountant to keep your LLC's books -- he can create a new capital account for the new member but you can't just transfer the current capital accounts from the other members to him.

Answer 2

First you need to figure out if you have a partnership or an LLC. They are different legal structures and what you have can't be both. The first answer appears correct for an LLC. Technically, it is not possible to add members to a partnership. any time members are added or removed from a partnership, you technically dissolve the partnership and for a new one. In Either case, I recommend having an attorney handle the transaction.

Answer 3

If you plan to add partners to your partnership, you should first amend your partnership agreement to include these new partners. Your partnership agreement should also include items such as: compensation/guaranteed payments of the new partners, the reimbursement of their expenses by the partnership and an exit plan for the partners---typically called a buyout plan. Make sure their capital contributions are well documented.

You may need to check with your state comptroller's office to determine if any state forms need filing---in case of a state franchise tax report requires this.

No paperwork is required to filed with the IRS; you will simply add the partners to the 1065 come tax time and issue two new K-1s. Since you are adding partners, the current partner's share of the partnership will change and this gets somewhat complex when you file your tax return.

I would strongly suggest you consult a tax advisor before, during and after this big change; adding new partners affects the tax standpoint of all partners.

Hope that helps.