Adding Members to an LLC: Tax & Legal Impact

[Rabih El-Khoury]

Hi. If you'd to care to contribute, I'd much appreciate it. The following is an actual scenario: 

Partners A, B, and C create an LLC.
Each partner has, say 2,000 shares. Total LLC shares = 6,000.
The LLC buys a property for $110,000.The LLC spends another $10,000 fixing up the property.
Total LLC investment $120,000, paid equally by the members, $40,000 each.

Persons D and E express interest in joining the LLC. The agreement ends up as follows:

1. D and E pay $120,000; A, B, and C each receive $40,000.
2. D and E own 80% of the LLC's shares, split evenly. So 80% x 6,000 = 4,800 shares, 2,400 to each of D and E.
3. A, B, C own 20% of the LLC's shares, also split evenly so 20% x 6,000 = 1,200 shares, 400 to each of A, B, and C.
4. D and E own 80% of that property's equity and cash flow and A, B, and C cumulatively own 20% of the property's equity and its cash flow.

Questions:

• In completing the above induction of new members D and E into the LLC and in A, B, C receiving $120k from D and E, is anything owed to the IRS? If yes, how much, for what, and by whom?

1. In amending the LLC's operating agreement, besides clauses related to the redistribution of shares per LLC member and stipulating details of the 80-20 ownership splits, is there anything else that ought to be mentioned?

Thanks!