Can I Covert a Multi-Member LLC to a Single-Member LLC?

Ownership of Limited Liability Companies (LLCs) changes frequently for a variety of reasons. If you have a multi-member LLC, which has two or more members, and are looking to convert it to a single-member LLC, you’ll need to understand how the process works and what’s required to do so.

In this article, I’ll walk you through the process of changing the ownership of your business from more than one person to a single owner. But first, let’s look at some issues you’ll need to consider.

Considerations When Converting to a Single-Member LLC

If you’re converting your business from a multi-member to a single-member LLC, the move will require legal, financial, and management considerations. Something important to keep in mind is that requirements for changing the ownership of an LLC can vary significantly from state to state. Be sure to pay close attention to what your state requires and seek professional help if you’re uncertain of how to proceed. Inadvertently neglecting to meet state requirements can result in penalties or, in extreme cases, dissolution of your business.

Refer to Your Operating Agreement

Hopefully, your LLC’s Operating Agreement covers how ownership interests should be transferred, how members can be removed, and any other subjects involved with converting a multi-member operation to a single-member LLC. No two agreements are alike, but ideally yours will address voluntary resignations, involuntary removals, owner buyouts, letters of resignation, valuations, and any other pertinent topics.

Legal Issues

If you’re seeking to remove a member against their will and your Operating Agreement doesn’t address how to do so, try to negotiate a buyout agreement. Doing so may allow you to avoid getting the court involved, saving everyone time, money, and hard feelings. If you’re able to come to an agreement, be sure to get the terms in writing.

If you’re unable to reach an agreement, you’ll need to rely on your state’s LLC laws for direction. That’s likely to result in involvement with the court, which normally is in your interests to avoid, as it can be a long and expensive process. If legal action is necessary, I’d strongly suggest contacting a business lawyer or other professional who can assist you.

Federal and State Tax Classifications

You also should be aware that transitioning your business from a multi-member LLC to a single-member company impacts your federal and state tax classifications. Unless a multi-member LLC elects to be taxed as a Corporation, the IRS considers it to be a Partnership for tax purposes.

When it becomes a single-member LLC, the IRS considers the change to be a termination of the Partnership and requires a final Form 1065 (the tax return form for Partnerships) to be filed. The business loses its tax status of a Partnership and is now considered a Sole Proprietorship for tax purposes.

As the only member of the LLC, you can choose whether you want to be taxed as a Sole Proprietorship or a Corporation. If you choose to be taxed as a Corporation, you’ll need to inform the IRS of your decision by filing Form 8832. If you don’t file the form, you’ll by default be taxed as a Sole Proprietorship.

That means that you’ll report business income and expenses using Form 1040, Schedule C and pay taxes based on your personal income rate. Be aware that an increase in income from your LLC profits may put you into a different income bracket and require you to pay a higher tax rate on income above a certain threshold.

Advantages and Disadvantages

Being taxed as a Corporation instead of a Sole Proprietorship can offer certain advantages without affecting the legal status of the business. You would avoid having to pay both the employer and employee shares of Social Security and Medicare taxes, known as the self-employment tax. In 2025, those taxes total 15.3% of earnings.

There are downsides to being taxed as a Corporation as well, however, notably the double taxation to which they are subject. After paying corporate taxes on profit, shareholders in the business who received distributions, in the form of dividends, from those profits must pay taxes on the same money on their personal tax returns.

Unless there’s a compelling reason to choose to be taxed as a Corporation, a single-member LLC generally benefits from being taxed as a Sole Proprietorship. If you’re not sure which type of taxation is better for you, I’d strongly recommend that you consult a tax professional.

State tax implications vary depending on where your business is located, but some states have different filing requirements for single-member LLCs, such as franchise taxes or annual reporting obligations.

Steps to Modify Your Multi-Member LLC

Following these steps can help you change your LLC from a multi-member business to one with a single owner. Since each state has unique requirements, be sure to verify the exact steps needed for your LLC in that specific state.”

1. Transfer Ownership Interests

When downsizing to a single-member LLC, ownership interests must be transferred from members who are leaving to the one staying. The terms of doing so may be spelled out in your Operating Agreement, making it a straightforward process that can be accomplished with a buy-sell agreement or other contract. If your agreement doesn’t cover this and members don’t agree on a process, things can get much more complicated, possibly requiring professional help.

An important step in transferring ownership interests is determining fair market value, as you can’t buy out a departing member without knowing the value of their share of the business. Your Operating Agreement may specify what form of valuation should be used to do this, such as the market approach, income approach, or asset-based approach. Once fair market value has been established and payment terms agreed upon, refer to your existing buy-sell agreement or the provisions in your Operating Agreement to execute the transfer.

To remain compliant with state regulations and tax reporting, you’ll need a written agreement that specifies the terms, conditions, and effective date of the transfer. Include the payment amount and all terms and conditions that apply.

2. Amend Your Operating Agreement

It’s important that you amend your Operating Agreement to reflect the changes to your business. In addition to establishing important instructions for how the LLC will be run, an Operating Agreement demonstrates that your LLC – regardless of how many members it has – is a separate entity that adheres to a specific set of rules. That reinforces your limited liability status and can help protect your personal assets if you’re sued or incur a lot of debt.

Instead of focusing on how decisions are made and profits divided among members, the Operating Agreement of a single-member LLC should highlight the owner’s sole control of finances and operations.

3. Notify the State

You’ll need to notify the state in which your LLC is registered about the change in ownership by filing Articles of Amendment. This document, sometimes known as a Certificate of Amendment or Certificate of Change, is used to make changes to the Articles of Organization you filed when registering your LLC. You’ll also need to report any changes in addition to your ownership structure, such as a different name or address or modification of business activities.

Requirements for filing Articles of Amendment vary depending on your state, so check the Secretary of State’s website to find out what applies to you. You’ll probably have to pay a fee to submit the form. Once you’ve completed and filed the document, it’s a good idea to notify the state to confirm its receipt and acceptance.

4. Update Tax Elections and Inform the IRS

It’s not typical for a single-member LLC to elect to be taxed as a Corporation, but, as noted earlier, you can do so if you wish. As you read, some entrepreneurs opt for this tax election to avoid paying self-employment taxes, and there may be other advantages in doing so. How you’re taxed can affect your bottom line, so if you’re unsure of how to proceed, I’d again advise you to seek advice from a professional.

5. Notify Your Financial Institution

Be sure to let the bank that handles your business accounts know about your ownership change, as information on account documents will need to be updated. You might have to provide a copy of your revised Operating Agreement or Articles of Organization to prove the changes were made.

Consider whether the bookkeeping system you used for the multi-member LLC is best for your new status, or if it might benefit from updating. And make sure that any accounts that required more than one signature are adjusted to show that you are now the sole authorized signer.

6. Update Licenses and Permits

Pay attention to any state or local business licenses and permits that have been issued to your LLC. You may have to inform the appropriate agencies of the ownership change and either transfer the licenses and permits or renew them in your name.

7. Notify Your Insurer

Contacting your insurance company about updating any business policies you have is important to avoid gaps in coverage.

8. Inform Clients and Vendors

Notify clients, vendors, and other applicable parties about your transition from a multi-member to a single-member LLC and make any changes necessary to contracts, orders, or other paperwork.

9. Check EIN Requirements

A single-member LLC is not required by the IRS to have an employer identification number (EIN), but financial institutions often require one to open a business bank account and you’ll need one if you plan to hire employees.

If you intend to operate as a disregarded entity for tax purposes, you may be able to maintain your LLC’s existing EIN. You may need a new one if you elect to be taxed as a Corporation. You can check the IRS website to see when a new EIN may be required and apply online, if applicable.

Maintaining Compliance During and After Conversion

As you can see, there’s more involved with converting your LLC from a multi-member to a single-member business than you might imagine. This multi-step process can be difficult to navigate, especially if you must deal with one or more members who are reluctant or unwilling to give up their ownership shares.

If you’re seeking to convert your multi-member LLC to a single-member LLC, consider whether you’re equipped to do so on your own, or if you would benefit from the services of a qualified professional. Maintaining compliance during and following the conversion is vital, especially since you’ll be operating on your own and solely responsible for keeping your business accountable. If you feel that you’d benefit from professional help, don’t hesitate to reach out to an individual or company that you trust.