LLC Membership and Management
A limited liability company (LLC) member is a person who has purchased an interest in the LLC and owns a share of the company. They are entitled to specific rights and privileges and can be held liable for debts and judgments that arise within the company, but they cannot be held personally liable for other acts committed by other members or employees of the company.
Types of Members and Ownership
- Individuals
- Other LLCs
- Foreign entities (as permitted by state law)
Some states require you to list the LLC members, but this is not always the case. Check your state’s specific rules.
Member-management is the default structure for LLCs, where all members are actively involved in the daily operations. There is no limit to the number of members an LLC may have, and members may come and go over the company’s lifetime.
Choosing Between Member-Managed and Manager-Managed
When Does Selecting Manager-Management Make Sense?
Hiring a manager may be the better option when:
- You have passive investors.
- The business is too large or complex for all members to co-manage effectively.
Member-Managed LLCs
- All members take an active role in business operations.
- Members are involved in the decision-making process and managerial duties.
Manager-Managed LLCs
- Designated member(s) or non-member(s) handle the day-to-day management.
- Suitable for LLCs with many members or complicated decision-making processes.
Operating Agreements and LLC Structure
The LLC’s operating agreement details ownership, management structure, profit distribution, tax obligations, and more. It must list who owns the LLC and their respective ownership percentages.
LLC Entity and Legal Standing
- Single-member and multi-member LLC options
- At least one manager required, similar to a corporation’s board of directors
- No upper limit on the number of members, except for S corporation-designated LLCs (100 members limit)
- Members’ liability is limited to their investment unless they act outside their duties or personally guarantee debts
Ownership Interest and Contributions
LLC members contribute capital to secure their stake in the business; this can be in the form of funds, physical assets, or other equity contributions.
Types of LLCs
- Single-member LLC: Has one owner who has full control over the company.
- Multi-member LLC: Has multiple owners who share control, with specified ownership percentages.
Employment Status of Members
LLC members are not automatically considered employees unless they are actively involved in day-to-day operations and receive a regular wage or salary.
Taxation and Financial Rights
All LLC members have an interest in the business, allowing them a share of profits and voting rights, as outlined in the operating agreement. The understanding of LLC taxation is crucial for new business owners to avoid potential issues with filing and IRS correspondence.