An LLC, or Limited Liability Company, combines corporation-like protection with partnership-like flexibility in its structure. Owners are referred to as members, and they have the option to manage the company themselves or to appoint managers.
Management and Taxation
The operating agreement of an LLC outlines the management structure, ownership, and other critical operational details. LLCs offer limited liability protection for members’ personal assets from business debts and lawsuits.
One of the key benefits of establishing an LLC is taxation. Single member LLCs have the advantage of being treated as disregarded entities, meaning they are taxed like sole proprietorships without the need for a separate tax return. Income and expenses are reported on the member’s individual return, avoiding the double taxation experienced by C Corporations.
Leadership Structure in an LLC
There are two primary management structures within an LLC – member-managed and manager-managed.
- Member-managed: All owners are involved in daily operations and decision-making.
- Manager-managed: Owners appoint one or more managers to handle the business operations.
Roles in an LLC
- Member: An owner with a stake in the company.
- Manager: An appointed person or member who oversees the LLC’s affairs.
Regardless of the structure chosen, members retain certain rights and remain responsible for important decisions like when to dissolve the company or admit new members.
Key Titles
- Members and Managers: Represent the ownership and operational leadership within an LLC.
- Chief Financial Officer (CFO): In charge of the company’s financial operations in a large or complex LLC.
Single-Member LLC Control
The sole member in a single-member LLC has full authority over the company’s operations and enjoys the benefits of limited liability. For tax purposes, such an LLC is treated as a disregarded entity with earnings and expenses reported on the owner’s personal tax return.