Hi

Thought you might be interested in my answer to a question that came in just this week:

Hi Lee, you said you can change the tax designation once. How do you go from a single LLC disregarded entity to being taxed as a partnership? My LLC is over 5 years old.

To add a member to an LLC, first look to the LLC Operating Agreement and follow the instructions in this document.  In most states this is an internal operation and you do not need to notify the state of your membership change.  You can check with the state where your LLC is filed to find out what you need to do.

When you go from a single member LLC to a two member LLC, the LLC will automatically become a partnership. A partnership is defined as a relationship between two or more persons who come together with the intent to do business.  Generally, if you and a partner own and operate an unincorporated business or LLC and you share in the profits and losses, then the IRS will consider you partners. Your LLC partnership will file a Form 1065.

If you change your LLC to a partnership, you will be a domestic LLC with at least two members in the IRS eyes. You will need to obtain an EIN number from the IRS because as a partnership you can no longer use your personal Social Security Number.  If you make no election, your LLC will be classified as a partnership for federal income tax purposes and will also be taxed a disregarded entity, unless you affirmatively elect to have your LLC treated as a C corporation by filing Form 8832.  Deciding that you wish to have your LLC taxed as an S or C corporation is known as a tax election. Simply remaining as either a partnership or single entity requires no tax election, so adding a partner means filling out a different form for your tax return, but still acts as a pass-through entity by default.