What Are the Positions in an LLC? Understanding LLC Hierarchy and Structure

LLC Basics and Taxation

An LLC, or Limited Liability Company, is a business structure that offers protection for its owners’ personal assets similarly to a partnership, while having the tax treatment akin to corporations. The main advantage of an LLC is limited liability protection for personal assets against business debts and lawsuits. LLCs also allow for flexible ownership and management, which is outlined in the operating agreement.

In terms of taxation, most single-member LLCs are treated as disregarded entities, meaning they are taxed like sole proprietorships. There is no need to file a separate tax return; income and expenses are reported on the member’s individual return, simplifying the tax filing process and avoiding the double taxation that affects C Corporations.

Management Structures in an LLC

Member-Managed vs. Manager-Managed

The management structure of an LLC may be either manager-managed or member-managed:

  • Member-Managed: In a member-managed LLC, the owners (members) are actively involved in the day-to-day operations of the company. This is a common structure for single-member LLCs or smaller groups where members prefer direct control of the business.

  • Manager-Managed: Alternatively, a manager-managed LLC appoints one or more individuals (managers) to handle the company’s operations. This person may or may not be a member of the LLC and is often referred to as a member-manager if they are also an owner.

The LLC’s operating agreement specifies the chosen management structure. It is crucial to weigh the advantages and disadvantages of each management type when determining the ideal structure for your company. Regardless of the management choice, members often retain certain rights over significant company decisions, such as dissolving the company or admitting new members.

LLC Ownership and Corporate Titles

Members and Managers

Two primary titles within the LLC hierarchy include:

  • Member: Owners of the LLC are referred to as members.

  • Manager: Individuals appointed to manage the business operations are called managers.

In addition to these roles, operating agreements can stipulate other positions and responsibilities.

Senior Financial Roles

Although not specific to the management structure, the senior person in charge of financial operations in a private limited company is generally the Chief Financial Officer.

Single-Member LLCs

A sole member of an LLC has complete control over the operations, decision-making, and profits of the business, while still enjoying limited liability protection. The IRS considers a single-member LLC as a disregarded entity for tax purposes, meaning the LLC’s income and expenses are passed through to the member’s personal tax return.

Leave a Comment