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However, there are other actions that need to be taken once your company’s Operating Agreement has been changed and the new ownership/management is reflected in the amended LLC’s Operating Agreement.
Below is a checklist for updating the appropriate government agencies and other important affiliates after the changes to ownership are completed.
Your LLC’s bank will typically want a list of all the current members and managers of the LLC; remember to inform the bank about the restructured ownership, i.e., which members’ names should be removed from the list of authorized signers, and which should be added.
When the EIN is issued in the name of the LLC, the IRS will require the information of a Responsible party of the LLC. The IRS defines the Responsible Party as “the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets.”
If the member who is leaving the LLC was listed as the Responsible Party, the IRS will need to be informed of the change; thus the LLC should typically file IRS Form 8822-B. The IRS mandates the 8822-B Form to be filed within 60 days of the change in ownership.
If you are changing from a multi-member LLC to a single-member LLC, another issue to ponder is how the LLC is taxed by the IRS. Typically, for tax purposes, the IRS considers a single-member LLC a disregarded entity and a multi-member LLC a partnership. In order to change your company to a single-member LLC, IRS Form 8832 will need to be completed and submitted to the IRS.
Qualified as a Foreign LLC:
Many states, including Florida, Texas and Illinois, require a complete list of the members’ names and addresses to approve the application in order to qualify an LLC as a foreign LLC. This information must always be current with the states where an LLC is foreign qualified.
Annual reports in these states will allow you to update the member information once a year, during a designated filing period. If the need is more urgent, an amendment to the qualification can often be filed in order to ensure the states have the most updated list of the LLC’s members.
Contact Person for Annual Billings:
The LLC’s Communications Contact must keep an individual’s name, street address and phone number updated with its Delaware Registered Agent. This information is not provided to the state of Delaware and is not part of the public record.
If the member who is leaving the LLC was the Communications Contact, the LLC should provide a new Communications Contact to the Registered Agent immediately so as to ensure any service of process or important notices about the LLC are received. Failure to keep the information valid and up-to-date can force the Registered Agent to take drastic action, such as resigning as the company’s Registered Agent in Delaware. This will leave the company without a Registered Agent, which places the company in an inactive status.
For any questions about removing a member or amending the LLC’s Foreign Qualification to update a member, call one of our helpful formation specialists at 800-345-2677, Ext 6900. We will be glad to assist you.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There are 4 comments left for Adding or Removing a Member of an LLCFERNANDO ROCHE said: Wednesday, May 20, 2020
I have a Single Member LLC and want to add a Managing Member. I do not have an Operating Agreement. I should made first the Operating Agreement for the Single Member and then make and Amendment or just go straight to the Operating Agreement with two members?HBS Staff replied: Thursday, May 21, 2020
Typically initial ownership is defined in the original operating agreement and is later altered to reflect changes in management. Creating and maintaining the agreement is an internal matter (not filed with the state). If you have concerns about legality or liability as far as how to proceed with your agreement, we recommend speaking with an attorney.Shaunta said: Thursday, January 16, 2020
I am the sole member of my LLC, but I want to add my husband and make him majority member so that we can classify the business as service disabled. I downloaded your "add a new member" template, but I don't see where I would designate ownership percentages which is vital for me to show to SBA. Where do I show that in the template you provided?HBS Staff replied: Thursday, January 16, 2020
Typically, ownership percentages are specific in the LLC's Operating Agreement, which can be amended as needed, such as when you add a new member. You are also free to edit and amend the template we provide as necessary. If you have any concerns about how to include specific terms or language, we recommend consulting an attorney for assistance.Shelly said: Monday, January 28, 2019
Hi there, I formed an LLC in FL with a partner without Operating Agreement. After few months, things didn't work out, so we bot signed an agreement for me to leave. Looking at the FL state gov web site, I was still listed as a manager, so does my partner. I am wondering if I am still the LLC member or not? What is the legal process to leave an LLC.? ThanksHBS Staff replied: Tuesday, January 29, 2019
Hi Shelly - Unfortunately this article and our expertise is in Delaware regulations, which differ from those of Florida. We recommend consulting with a local attorney or the state directly to resolve this matter.Talvin warren said: Wednesday, November 14, 2018
Need help removing a name from my businessHBS Staff replied: Friday, November 16, 2018
Talvin, please contact us at 1-800-345-2677 or use the chat feature on the site and we'll be happy to assist.