As time goes on, it isn’t uncommon for LLC members to come and go as the business changes. However, adding a new member to a Texas LLC isn’t always as straightforward or simple as you may think. Adding a Texas LLC member requires several legal steps, so you need to know what documents outline when this is possible.
If your goal is to add a member to a Texas LLC, you need to get the help of a small business attorney. A Texas business attorney will have more experience in this area and can help you navigate the Texas laws and LLC protocols.
Keep reading to find out when you can add a new owner to an LLC in Texas and how this will impact the business’s structure and management.
Understanding the LLC’s Governing Documents
In most cases, you can add a new member to a Texas LLC as long as you follow the necessary legal steps. But before you start this process, you need to review the LLC’s governing documents, which will outline whether new members are allowed and, if so, how they should be added.
The main documents you need to review are either the company agreement or the operating agreement. These documents should include rules for voting, approval processes, and the admittance of new members.
If the LLC does not have an agreement that dictates how you can add new members, Texas default law will apply. In Texas, when there is no company or operating agreement, then all existing members in the company must unanimously consent to add a new member.
Determine the Rights of the New Member
Once you have reviewed the necessary governing documents to determine how to add a new member to a Texas LLC, you also need to determine the rights of the new member. It’s important that you do this before officially adding them since these terms will impact all of the other members and even how the business runs.
Here are some of the key things you need to determine before moving forward:
- The ownership percentage of the new member.
- Whether the new member’s percentage of ownership will dilute the other members’ interests.
- The new members’ capital contribution.
- The voting rights of the new member.
A Texas business attorney can help you review all of these details before officially adding a new member to the business. Being thorough from the start can help this process go more smoothly as well as reduce the risk of disputes from occurring later on.
Obtaining Member Approval
To officially add a new owner to a Texas LLC, you need to follow the procedures outlined in the company’s governing documents regarding member approval. And, as we mentioned above, if there are no governing documents, Texas law requires unanimous member approval.
In addition to determining that all members approved, you also need to properly document member consent. You will need to keep records of this for future reference along with other important LLC governing documents.
What Happens After You Add a New Member to a Texas LLC?
The process of adding a member to a Texas business doesn’t stop once they have been officially integrated. There are several steps that come afterward to help further establish them in the business and update the LLC’s legal documents.
So, here are some additional things that will need to happen after adding a new LLC owner:
- Management changes: When adding a new LLC member, you need to determine how this changes management. For example, will the new member enter contracts or play a part in making significant business decisions?
- Updating legal documents: After the new member has joined the LLC, you need to add them to the company agreement or operating agreement. When doing this, you must address distributions, transfers, exits, buyout, capital contributions, voting and management provisions, and ownership percentages.
- Address taxes: Depending on the LLC, adding a new member may come with tax implications. For example, adding a new member to a single member LLC would mean that you are creating a multi-owner LLC, which requires you to file taxes differently. A business attorney can help you determine how adding a new member will affect taxes and what additional administrative steps you may need to take.
- Member access: To ensure this transition goes smoothly, you need to make sure the new member has access to everything that they need. This may include giving them access to the LLC’s bank accounts, adding them to existing contracts, updating payroll records with their information, etc.
FAQs
Can a Texas LLC add another owner after it has already been formed?
Yes. However, exactly how you can do this will depend on the LLC’s governing documents or applicable Texas law.
Do all members have to agree before adding a new member?
Sometimes. This depends on the procedures outlined in the LLC’s governing documents. But if the LLC doesn’t have any governing documents, such as a company agreement or operating agreement, Texas law requires consent from all members.
Does adding a member change ownership percentages?
A new member can alter the ownership percentages of the existing members, but this will depend on the situation.
Should the operating agreement be updated when adding a new member?
Usually, yes. Company and operating agreements should accurately reflect the LLC’s current ownership, including its management structure and the rights and obligations of the members.
Does adding a member affect taxes?
This depends on your current federal tax classification. In some cases, adding a new member can change your LLC from a disregarded entity to a multi-member partnership, which would affect your tax filing status.
Get the Help of a Texas Business Lawyer Today
Although it is possible to add a new member or have an ownership change with a Texas LLC, you need to make sure you follow the necessary legal steps when doing this. To avoid running into any legal issues, it’s recommended that you work with a Texas LLC attorney, who can help you review the business’s governing documents. Contact us today at Sewell Sewell Beard LLC by calling us directly at 972-777-5390 to discuss your situation with one of our Texas business lawyers.