Growing Your (Very) Small LLC Business
- harveyskis
- 5 hours ago
- 2 min read
Many small businesses start small. Like, really small. Like, single member LLC small. A single member LLC is a good way to protect yourself from liability as you begin your journey in business. But what happens when you grow enough to warrant another member? How do you properly add another member to a single member LLC?
First, there are the state level requirements. If the addition of a new member will cause a change to the LLC’s principal place of business, mailing address, registered agent, or management structure, this must be reported to the Colorado Secretary of State using the appropriate reporting forms.
Next, there is the internal agreement between the members. When the LLC was a single member LLC, you probably either had a very simple operating agreement (basically an agreement with yourself), or no agreement at all. Adding a new member changes all of that. There will now be issues that need to be addressed between the new members regarding the amount of capital each will contribute (or has already contributed) to the LLC, as well as any obligations to contribute additional capital to the company in the future, the management of the company, and the procedures regarding how a member may exit the company (including any buy-sell agreements). These issues should all be addressed in a written operating agreement, or an amended operating agreement.
Finally, you need to address the LLC’s changed tax status. Presumably, you elected to have your LLC disregarded as a separate entity for tax purposes when you started as a single member LLC. You simply used your social security number as the entity’s taxpayer identification number. This option is no longer available when you have more than one member. Adding a member requires that you obtain a new taxpayer ID number for the entity and begin filing taxes as either a partnership or a corporation. If your single-member LLC already has an employer identification number (EIN), you should file Form 8832 with the IRS to elect partnership taxation or corporate taxation. You'll also need to provide the IRS with the names of your new members.
Growth is great, as long as it is done properly. If you have a growing business and would like to discuss options for bringing on new members or new investors, schedule a complimentary 15-minute discovery call to get started today:
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