Adding or removing members of an Ohio LLC

Do you file anything with Ohio to add or remove an LLC member?

Usually not. Under ORC 1706.16(A), Ohio articles of organization must contain only three things: the company name, the statutory agent's name and street address with the agent's signed acceptance, and any other matters the organizers or members chose to include. Members are not on the list. Ohio LLCs also file no annual report, so there is no yearly form where an ownership change would show up.

That means the Secretary of State's record of a typical Ohio LLC looks the same the day after a member joins or leaves as it did the day before. Ownership lives in the company's own documents, mainly the operating agreement.

Three situations where a state filing does come up

• Your articles named members or managers as an optional provision. If the articles now say something untrue, file a certificate of amendment (Form 611) to fix them. The state fee is $50, and our Ohio amendment service can prepare it.
• The LLC filed a statement of authority under ORC 1706.19 naming a person who is leaving. That statement is conclusive in favor of people who rely on it, so amend or cancel it. ORC 111.16(N)(4) sets that fee at $50.
• The departing member was also the LLC's statutory agent. The agent appointment does not end because the person stopped being a member. Name a new agent with a Statutory Agent Update (Form 521, $25).

Look at your filed articles before you assume you are in the "nothing to file" group. Many older Ohio LLCs listed the original members out of habit.

How do you add a new member to an Ohio LLC?

ORC 1706.27(B) lists the ways a person becomes a member after the LLC is formed. The two that matter for most small companies are:

• As the operating agreement provides. If your agreement sets a procedure, such as a majority vote or a manager's approval, follow it exactly.
• With the consent of all the members. If the agreement says nothing, everyone who is already a member has to agree. In a single-member LLC, that is just you.

The statute also allows admission through a merger or similar transaction, and a 90-day procedure when the last remaining member has dissociated. Under ORC 1706.27(C), a person can be admitted without acquiring a membership interest or making any contribution, which is how some LLCs admit a manager-member or a family member who will not own an economic share.

Buying an interest is not the same as becoming a member

ORC 1706.341 lets a member assign all or part of a membership interest. An assignment alone does not make the buyer a member. The assignee gets the right to receive the distributions that were assigned, but no right to vote, manage, or see the company's records until admitted. If you are selling part of your company to a new partner, the deal needs two pieces: the assignment of the interest and the admission of the buyer as a member.

How does a member leave or get removed from an Ohio LLC?

This is where Ohio's law surprises people. ORC 1706.41(A) says a person "shall not voluntarily dissociate" from an Ohio LLC. A member cannot simply announce a resignation and walk away with a check. Leaving happens through one of the events in ORC 1706.411, and most of them depend on what the operating agreement says.

• An event the operating agreement names as causing dissociation, such as a written notice of withdrawal if the agreement allows one
• Expulsion under the operating agreement
• Expulsion by unanimous consent of the other members, but only in narrow cases, such as when it has become unlawful to continue with that person as a member
• Expulsion by court order for wrongful conduct or persistent material breach
• Death, appointment of a guardian, or a court finding that the member can no longer perform their duties
• Bankruptcy, unless the person is the sole remaining member
• Assignment of the member's entire membership interest

What a departing member keeps

Under ORC 1706.412(A), a dissociated member loses the right to take part in the company's affairs and keeps only the right to the distributions they would have received anyway. The statute does not force the LLC to buy them out. If the owners want a clean break, the buyout price and payment terms have to come from the operating agreement or a separate purchase agreement. Dissociation also does not erase debts or obligations the person incurred to the LLC while a member (ORC 1706.412(C)).

A member who leaves in breach of an express term of the operating agreement dissociates wrongfully and is liable to the LLC for the damage it causes (ORC 1706.41(B)-(C)).

What your operating agreement should say about member changes

Because Ohio law leaves so much to the agreement, a vague operating agreement turns a routine ownership change into a negotiation. ORC 1706.01(R) defines an operating agreement as any valid agreement of the members, written or oral, or a written declaration of a sole member. An oral understanding counts, but it is hard to prove and hard to hand to a bank. Before any member change, check that your agreement answers these questions:

• Who has to approve a new member, and by what vote?
• Can a member withdraw by notice, and how much notice?
• Is there a buyout right or obligation when a member leaves, dies, or becomes disabled?
• How is the buyout price set: a formula, an appraisal, or a fixed number updated each year?
• Can a member sell to an outsider, or do the other members get first refusal?
• What happens to management authority and bank signing power when a member exits?

Our guide to the Ohio LLC operating agreement covers the agreement as a whole. Here, the point is narrower: amend the agreement in writing at the same time as the member change, so the schedule of members, ownership percentages, and capital accounts match the new reality.

Documents to sign for an Ohio LLC ownership change

Even though nothing goes to Columbus, the change should leave a paper trail in the company's records. A typical file for adding or removing a member holds:

• A written consent or meeting minutes approving the admission or recording the dissociation
• An assignment of membership interest, signed by the seller and accepted by the buyer, if an interest is changing hands
• A joinder, where the new member signs on to the existing operating agreement
• An amended operating agreement or updated schedule of members and percentages
• Records of any capital contribution or buyout payment, and the date it was made
• Updated membership certificates, if your LLC issues them

Date everything. Tax allocations, distribution rights, and bank authority all turn on when the change took effect, and a member who leaves in March should not be arguing in December about whether they were still an owner in June. Keep these documents with the articles and agreement where every member can find them; ORC 1706.33 gives members a right to inspect company records.

How member changes affect your LLC's taxes and EIN

The IRS classifies LLCs by member count unless the company elects otherwise. An LLC with two or more members is a partnership by default, and an LLC with one member is disregarded for income tax by default. So the federal tax picture can change on the day a member joins or leaves.

The S corporation row deserves a hard look. The IRS limits S corporation shareholders to individuals, certain trusts, and estates, and bars partnerships, corporations, and nonresident aliens. Admitting a holding company or a foreign partner can end the election. Our S corp election service covers filing the election; whether a new member fits is for your accountant.

The IRS's published list of when a business needs a new EIN does not cover every LLC membership change, so do not guess. Ask your accountant before you apply for a second number. If you do need one, our EIN and tax ID service can file it.

Bank, license, and contract records to update

The outside world learns about a member change only when you tell it. Work through this list within a few weeks of the effective date:

• Bank accounts. Remove a departing member's signing authority and debit cards, add the new member if they will sign, and expect the bank to update its beneficial ownership certification. Our guide to the Ohio LLC business bank account explains what banks typically ask for.
• Loans and leases. Many contain change-of-ownership clauses that require notice or consent. Personal guarantees signed by a departing member usually stay in place until the lender agrees to release them.
• Professional and trade licenses. Some licensing boards track owners and require notice when ownership changes.
• Insurance. Tell your agent who the owners and key people are, especially for key-person and liability coverage.
• State and local tax accounts. Update owner and officer contacts on the accounts your LLC holds.
• Vendors and customers. Update who can sign contracts and approve invoices.

What happens when the only member of an Ohio LLC dies or leaves?

A single-member LLC has no one left to consent when its only member is gone, so Ohio sets a clock. Under ORC 1706.47(D), the LLC dissolves and must wind up once 90 consecutive days pass after the last remaining member dissociates. ORC 1706.27(B)(4) gives that same 90-day window to admit a new member and keep the company going.

When the last member dies, the statute adds two ways to avoid dissolution: the operating agreement can provide for a substitute member effective before the 90 days run out, or a substitute member can be admitted in a written record within the 90 days, effective as of the date of death. That is a strong reason for a single-member LLC owner to name a successor member in the operating agreement. Without one, the family may be racing a deadline while also handling probate.

If you own an LLC alone, put the successor language in writing now and keep a copy where your family or executor can find it. Your attorney can tie it to your will or trust.

Does a member change affect your Ohio statutory agent?

Not if the agent is a service. Your statutory agent is appointed by the LLC, not by any one member, so a change in owners leaves the appointment in place. Lawsuits and state notices keep going to the same address.

The problem case is the small LLC where one member served as the agent from their home. When that person leaves, especially on bad terms, the company may not hear about a lawsuit served at the former member's house. Replace the agent promptly with Form 521. Our Ohio statutory agent service is $49 a year, we file the change for you after you sign, and the state charges $25 to record it. Portal roles can be limited to specific entities and document categories, so you decide which members and employees see the company's legal mail.

When to bring in an attorney or accountant

A friendly change in a well-drafted LLC is mostly paperwork. Bring in an attorney when the operating agreement is silent or contradictory, when a member is being pushed out, when a buyout price is disputed, or when a member has died and the estate is involved. Bring in an accountant before the effective date whenever the member count crosses one, an S election is in place, or money is changing hands, since the timing affects how income is split for the year. We do not give legal or tax advice, but we can file the state forms that come out of the decision.