Legal Question in Business Law in California

No. After an LLC is initially formed, a person may become a member only as set forth in Corporations Code section 17100(a)(1) or (2). Basically, a new member has to be voted in by the existing member(s).

The law recognizes that someone may become an economic stakeholder in an LLC without becoming a member. Membership carries with it certain voting rights and, with some LLCs, the right to be a co-manager. So, remember, LLCs can have members, managers and stakeholders, each with differing rights and powers.

Further, when someone invests in a business of any kind, that investment may come in as debt financing (a loan), or as an equity investment. Debt financing is usually characterized by payment of more-or-less fixed interest and an obligation of the company to repay at a given time or times in the future. Equity financing is money that comes in in exchange for some kind of a stake in the company's future profits, such as an expectation of dividends, distributions, or a profitable buy-out or merger.

A lender making debt financing investments would not ordinarily become a member or stakeholder, although that is not impossible. Usually, lenders simply become creditors.

So, the answer is, again, NO, investing money does not necessarily make the third party a member -- in fact, much more is required to become a member -- but whether the investor is a lender, stakeholder, or someone who is under contract with you to become a member is another question, and the answer depends upon the terms of the deal you've made.

If the terms are vague (and shame on you!), you may end up in court where a judge or jury will review the facts and decide whether the investor is merely a creditor or something more.