LLC Number of Owners: Everything You Need to Know
LLC number of owners depends on the ownership of the LLC.3 min read
3. Limited Liability Company
LLC number of owners depends on the ownership of the LLC. It may be owned by an individual, other LLCs, corporations, partnerships, or any other legal entity recognized by the state's local laws.
One of the first decisions a new business owner must make is deciding on the type of entity structure to use to form the company. This is usually a choice between a corporation or LLC. Each has their own process of formation and operating structure.
Each owner in a corporation owns shares of stock. Owners are referred to as shareholders. A shareholder's portion of the corporation's ownership is measured by the number of shares owned.
Shareholders are responsible for electing a board of directors whose job is managing the company. A shareholder may be elected to the board but there is no requirement that a shareholder holds the position. In some states, a board of directors may consist of only one director. In other states, the requirement is there must be more than one director.
The board of directors makes all major decisions via a vote pertaining to the company. The decisions are then documented as formal resolutions, which requires taking meeting minutes.
The board also delegates the responsibilities of day-to-day management to officers of the corporation who carry out the decisions made by the board. There is no requirement that an officer must be a shareholder or a director to hold the position of officer. This means officers, shareholders, and directors can be different people although there may be some overlap.
Corporations are governed by a Certificate of Incorporation, which is also referred to as Articles of Incorporation or Charter, and a set of bylaws that define the procedures for voting and the election of the board of directors. In a corporation, there can be one or more shareholder agreements. This clarifies the rights that shareholders have among themselves, including:
- Rights of refusal.
- Restriction of transfers.
Also, corporations are usually required to hold an annual meeting of the board and/or shareholders regardless of whether there is any significant business to be discussed. In summary, corporations are governed in a more structured and formal process.
This may be beneficial in some situations since the company consists of a significant number of owners involved in its operation and structure provides a better decision-making process. A disadvantage of the corporate structure is the many formalities involved that may be too much for a small business that has only a few owners or just one owner.
Limited Liability Company
To form a company with a single owner, a limited liability company (LLC) is the easiest organization to manage. LLCs can be formed with any number of members. Single-member LLCs may be owned by other LLCs, creating a multilayered company. This is a strategy used in industries such as:
- Branded retail products.
- Real estate.
While there are no restrictions on the number of members you can have with an LLC, this is not the case with other structures. For example, limited liability partnerships (LLPs) must have more than one partner. S corporation cannot exceed 100 owners, and a sole proprietorship is limited to one owner.
A limited liability company is formed by filing its articles of organization with the applicable secretary of state where the business is initially headquartered. An LLC may be managed by its members similar to the way a partnership is managed. This business structure is referred to as member-managed where the members approve major decisions.
An LLC can also be manager-managed. The members do not manage the company but elect one or more managers who have the authority to make decisions. A third option is board-managed, which is where members elect a board of directors who manage the company, much like that of a corporation.
A general misconception of LLC ownership is that the company can sell stock on the open market. This is not the case. LLCs are not legally authorized to sell ownership interests to the general public. Unless the articles of organization specify that adding new members or owners is prohibited, LLC members can vote to add an owner or owners.
There are no states laws established that legally state there is a maximum number of owners or members an LLC can possess. An LLC does have to maintain at least one member or owner at all times.
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