How to Add or Remove a Member, or Transfer LLC Ownership

The operating agreement is the first place to look for any change of ownership. Most agreements say whether a member may sell or give away an interest, whether the other members must consent or get the first chance to buy, how a departing member is bought out and at what price, and how a new member is admitted. If your agreement covers the change, follow it step by step.

Clauses to look for

• Transfer restrictions. Whether a member can sell or assign an interest, and to whom.
• Consent and first refusal. Whether the other members must approve, or may buy first on the same terms.
• Admission of new members. Who votes on it and what the new member must sign.
• Buyout or buy-sell terms. Events that trigger a buyout (leaving, disability, death, divorce) and how the price is set.
• Amendments. What vote it takes to change the agreement itself.

If there is no written agreement, or it says nothing about the change, your state's LLC law supplies default rules. In many states those defaults let a member transfer the financial rights in an interest, while the buyer becomes a full member with a vote only if the other members agree. Because the defaults differ from state to state, have a lawyer read them for you. See our operating agreement guide for what a good agreement covers.

Most of an ownership change happens in private documents between the members, not in a state filing. Which documents you need depends on the kind of change. The table shows what is commonly used; your operating agreement and your lawyer decide what yours needs.

Whatever the change, update the operating agreement so it shows who the members are now and what share each one holds, and keep the signed documents with the LLC's records.

Whether the state's record shows your LLC's members or managers depends on the state and on what your LLC filed. Where your filed document names them, a change can mean filing an amendment, and where your state's reports can name them, the next report can show the change. Across the 50 states, our records show the formation document can ask for member names in 18 states (in 13 of them only in certain cases, such as when the members manage the LLC) and for manager names in 21 (in 16 only in certain cases). It does not ask for member names in 25 states or manager names in 21. We have not checked member names in 7 states or manager names in 8.

Our LLC amendment guide covers how to file an amendment, state by state.

A change of members can change how the LLC is taxed. By default, the IRS generally treats an LLC with one member as a disregarded entity, reported on its owner's return, and an LLC with two or more members as a partnership, unless the LLC has elected to be taxed as a corporation. So going from one member to two, or from two members to one, can change the LLC's default classification and the returns it files. If the LLC is taxed as an S corporation, only certain kinds of owners are allowed, so check before admitting one. A sale or buyout can also have income tax effects for the seller and the buyer. See the LLC tax guide and the single-member LLC guide.

• The EIN. The IRS record for the LLC's employer identification number may need updating, for example if the person named as its responsible party changes, and a change in how the LLC is classified can raise the question of whether it needs a new EIN. Check the IRS's guidance or ask a tax professional. Our EIN guide covers the basics, and the Form 8822-B guide covers reporting a new responsible party to the IRS.
• The bank. Tell the LLC's bank about the change and update who is on file as an owner and who can sign on the account.
• Licenses and permits. Some licenses and permits are issued to named owners or depend on who owns the business, so check each one the LLC holds.

Giving an LLC interest away, or passing it on at death, is governed by the operating agreement, your state's LLC law and estate law, and it can have gift or estate tax effects. Many operating agreements say whether an heir or the person receiving a gift becomes a member or only receives the financial rights, and whether the LLC or the other members can buy the interest first. This is an area for an estate planning lawyer and a tax professional, ideally before the transfer is needed.

This page is general information, not legal or tax advice for your situation. Before you sign anything, have a lawyer review the transfer documents and a tax professional review the tax effects for the LLC and for each member.

1. A local business lawyer. A lawyer who practices in the state where the LLC was formed can read your operating agreement and that state's LLC law together, draft the documents and advise each side. Many state and local bar associations run lawyer referral services.
2. A tax professional. A CPA or enrolled agent can tell you how the change affects the LLC's returns and each member's taxes.