Owners of a Delaware LLC can add or change members at any time simply by amending the LLC Operating Agreement. Delaware does not require owners to make any additional public filings to add members to their LLC. However, existing members should take certain steps to avoid conflict when transferring membership.
We cover exactly how to add a member to a Delaware LLC—and how to change membership. We also offer some best practices to follow when changing membership in an LLC.
How to Add a Member to a Delaware LLC
A Delaware LLC can make membership changes by following three simple steps:
Step 1: Vote On Changes
Changing membership in a Delaware LLC starts with existing LLC members holding a vote. Existing members must provide unanimous consent before an ownership transfer can be made.
LLC members cannot simply endorse their membership to anyone. This is because of the “Pick Your Partner” provision typically included in the LLC Operating Agreement. Pick Your Partner protects members by preventing unwanted individuals from joining their LLC.
Step 2: Draft a Member Resolution
After agreeing on an ownership change, members should draft a member resolution.
A member resolution should:
- Identify the current membership structure;
- Detail the proposed new membership structure;
- Specify any payments made for the transfer;
- Specify any other terms and conditions of the transfer, such as indemnification and release of claims;
- Be signed by all parties involved (both old and new members).
LLC members or managers should keep the the signed member resolution with other important corporate documents.
Step 3: Draft an Amended and Restated Operating Agreement
After signing the member resolution, the LLC members who are part of the new “cap table” should execute a First Amended and Restated Operating Agreement. An Amended and Restated Operating Agreement accomplishes two goals. The agreement should:
- Identify the new membership structure, and;
- Replace and restate the entire existing LLC Operating Agreement.
Like the member resolution, all resulting members should sign the Amended and Restated Operating Agreement and the signed copy should be kept with the company’s records. Members may undergo this process of amending and restating the Operating Agreement many times over the course of an LLC’s life.
Additional Notification May Be Required
Under certain circumstances, an LLC may need to notify government offices or third parties about internal membership changes.
The most apparent case would be if a Delaware LLC is qualified as a foreign entity in another jurisdiction. Every state has its own LLC laws. Some states may have specific deadlines by which they require notification of any membership changes.
Another example is if the LLC has filed a DBA (“Doing Business As”). The state of Delaware requires LLCs complete an amended DBA filing if the company’s membership changes. Some third parties, such as licensing bureaus and vendors, may require LLCs to notify them of any membership changes
Starting in 2024, FinCEN will also need to be notified within 30 calendar days of a change in beneficial ownership to be in compliance.
Changing Membership: The Delaware LLC vs. Other States
Changing membership in a Delaware LLC is straight-forward because it does not require making any additional filings to the Delaware Secretary of State.
The Delaware LLC Act states that LLC members are identified solely through the Operating Agreement. Delaware does not require LLC owners to disclose the names and addresses of members on the publicly filed Certificate of Formation. This means members can make changes can to the LLC Operating Agreement freely with the approval of all members.
Many other states impose specific requirements to change membership in an LLC. Some jurisdictions may require LLCs to identify any managing members or managers in the initial filing document or in the annual report.
Should An LLC Use Membership Certificates?
Most experts do not recommend using LLC Membership Certificates because they are not an official record of ownership. An LLC can issue Membership Certificates to provide further evidence of ownership. LLC Membership Certificates list ownership interest as individual units rather than as a percentage.
However, an LLC Membership Certificate does not function like corporate stock. Membership Certificates are only derivative of any rights provided in the Operating Agreement. Members can create confusion about the nature of LLC ownership by issuing LLC Membership Certificates.