How to Admit a New LLC Member to a Limited Liaibility Company LLC
If you have an existing limited liability company and now want to admit a new Member, you need to consult with the provisions in your LLC Operating Agreement to determine how to admit a new Member. This Agreement governs the requirements and processes for your particular LLC when it comes to admitting a new Member to your limited liability company.
Generally (although this can vary based on the specific LLC’s rules), a vote of the Members will be required to admit a new Member and so a certain percentage of the current LLC members must approve. Make sure all pre-admission requirements set forth in the LLC Operating Agreement have been met.
After approval, the LLC should make sure that the issuance of Membership Units to the new Member is in compliance with any applicable state securities laws. Security laws are beyond the realm of LLC laws but generally if the member being admitted has a pre-existing relationship with you and the LLC and will be active in the management and operations of the LLC, there should be no state limitations.
On the other hand, if the member is more like an investor and will be contributing substantial money or other property in exhange for an ownership interest, please check with your local attorney to determine if there are any securities related obligations.
Once security related issues are cleared, then, a document, commonly called a Membership Issuance Agreement should be prepared and signed by the LLC and the new Member. And, finally, and most important, the new Member must sign a written document agreeing to be bound by the LLC Operating Agreement of the limited liability company. The records of the LLC need to be updated to reflect the new Member.
If the Member is required to commit capital or services in exchange for his or her Membership Units, it is very important that these obligations be set forth in a writing signed by the Member. In the event the Member is required to provide capital or services over time, it is a good practice to provide for a mechanism where the Membership Units are forfeited or transferred back automatically if the new Member fails to meet his obligations. These types of arrangements can vary tremendously based on each situation so it is good practice to hire your attorney to properly document these transactions.
