I have a single member LLC that is for the purpose of holding and managing real estate investments. I want to take on a partner in the business. Can I add an additional member or should I dissolve the current LLC and form a new one with the new partner? If I can keep the same LLC, what is the proper procedure to add a new member?
You should not need to create a new LLC. It is a relatively simple process to add another member to your LLC but I would recommend consulting with a local lawyer to properly document the transaction. Specifically, you will want to draft a purchase agreement for the membership units you are selling. Moreover, you will need to have the attorney review your current operating agreement, or draft one if you do not have one, to govern the operation of the agreement. I would also recommend asking about a Buy-Sell Agreement so the new member does not sell his interest and stick you with a new business partner that you might now want.
Tax Point: Remember that the LLC will no longer be a disregarded entity, so you can not simply report the activity on your Schedule C Form 1040. You will need to file a partnership return for the LLC, a Form 1065, and issue K-1s to you and your co-member.
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Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties. He can be reached at 215-735-2336 or at the email address listed below. He has received a 9.7 rating from AVVO and recently was featured as a 5Star Wealth Manager in the Philadelphia Magazine, November 2009 issue on page 123.
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