Legal Question in Business Law in California

Re: LLC - adding a new partner

The answer in part depends on your current LLC agreement. Start there and review the provisions. There may be terms requiring notice, approval, qualifications, etc. Also, you may have to amend any filings that you have made with local or state authorities listing the partners. Legal counsel can assist you with determining what filings and changes need to be made.

Re: LLC - adding a new partner

The process depends in part upon whether this is an addition of a new member or the transfer of an existing membership to a different person, as when someone withdraws and is replaced.

Also, keep in mind that membership (it is better to refer to the participants in an LLC as 'members' rather than 'partners') has two aspects -- an economic aspect and a management aspect. An economic interest in an LLC consists of the right to share in profits and the right to a distribution in liquidation and is more freely transferable than the member's right to participate in management and control of the business. For example, when a member dies, his heir can inherit the economic interest but is not thereby admitted as a member with management rights.

Both aspects are usually addressed separately in the LLC operating agreement or articles of organization.

The Corporations Code provides some guidelines for what the agreement or articles may provide, and some rules that apply in the absence of an agreement. Look at, for example:

Corp. Code section 17301 re transfer of economic interests.

Default voting provisions on admittance of new members, CC sect. 17301(a)(1); 17303(a).

New member must sign operating agreement - CC sect. 17100(a)(1).

New member must be added to list of members required by Corp. Code 17058(a)(1).

In general, if the agreement doesn't provide otherwise, admission of a new member requires vote of a 'majority in interest' of existing members and becoming a party to the operating agreement. 'Majority in interest' means persons holding, collectively, a majority of the economic interest, as opposed to a simple head-count majority.