FORTUNE Small Business:

Growing an LLC

How to add partners and operate in multiple states

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(FORTUNE Small Business) -- Dear FSB: I formed an LLC recently, using an online service. That worked pretty well for me, and now I would like to add a partner in the firm. How do I do that? My company is a Delaware LLC. What are the formalities to start operating my business in New York and New Jersey? I opened my bank account in New York, and was told that it does not really matter where the account is. Advice on this shall be greatly appreciated.

- Nick, Princeton, N.J.

Dear Nick: The online service you used to form your LLC should be able to help you add a partner. The process is straightforward: Just file an amendment with Delaware notifying them that there will now be two members in the LLC rather than one. You can download a format for the certificate of amendment from the Division of Corporations' website for Delaware.

Don't stop there with setting up your business. Now is the time to plan how you'll do business day-to-day. Bob Cooney, a legal consultant with the New Jersey Small Business Development Centers (NJSBDC) at William Paterson University, advises that you "seriously consider writing up a partnership agreement detailing how the ownership percentage and management duties are divided." To be of the safe side, you should include liquidation plans as well.

"Foreign qualification filings would include a preliminary name availability check in the state of qualification, and obtaining a certificate of good standing for your business from the state of formation," Cooney says. You should be able to do all this through your online service.

You can find information online about registering your out-of-state LLC in New Jersey. For details on expanding into New York, visit the Division of Corporations website.

Once your business is operating across multiple states, you'll have to file separate tax forms - the federal partnership form 1065 as well as a partnership return for any state you do business in. Income from the partnership will go on your individual return, says Robert Moses, a retired CPA and volunteer with New York City chapter of SCORE, a nonprofit resource for small businesses.

You'll need to think about allocating income among these states. Each state may have different rules for how this is done, says Grafton 'Cap' Willey of accounting and consulting firm Tofias PC.

"Most use a variation of the corporate apportionment factors, which apply a percentage of payroll, a percentage of assets and a percentage of sales to determine the amount of income reported to each state," he says.

If all this seems like a lot to take in and you want to have a one-on-one with a CPA, visit or to locate a CPA near you.  To top of page

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