What Is the Role of an LLC Member?

A membership interest refers to the owner's stake in the company. They may have invested financially or provided services or resources to the LLC, and they receive a portion of the LLC's profit. Since the structure of an LLC is flexible, so is the role of its members, who may act as the sole proprietor, a passive investor, or a partner.

If there is only one member, that person can call himself whatever title he prefers. The managing member is similar to the CEO or president of a company, as they are in charge of business operations. Thus, an LLC does not require a separate CEO or president.

How Does the IRS Tax Single-Member LLCs?

Single-member LLCs are viewed as sole proprietorships whose personal assets are protected from company debts. The sole member is taxed as a self-employed individual, as opposed to an individual who receives a salary from a company. LLCs with multiple members receive the default tax classification of partnerships. Members can share profits among themselves as they see fit, but cannot give themselves a salary.

What Is an LCC Member-Manager?

Member-managers are LLC members who are actively involved with running the LLC or have the authority to make decisions there. None except the member-manager can fill out the Return of Partnership Income form to report income distribution.

What If an LLC Does Not Have a Member-Manager?

The IRS views all owners as member-managers in the absence of an elected member-manager.

What Are Passive Members?

LLC passive members are similar to limited partners, whose involvement does not extend beyond their initial investment. Their profits are taxed as passive income, and employment taxes do not apply to earnings. Owners can elect to be passive members by hiring a manager who is not a member.

According to the Uniform Limited Liability Act of 1996, Section 404, passive members “have no rights” when it comes to company management and operations unless stated in the LLC's operating agreement. However, they do help do the following:

  • Elect managers
  • Amend operating agreements
  • Admit new members

How Is an LLC Taxed?

An LLC can change its classification to a C or S corporation. If it does, the LLC can give member-managers a salary. This salary or wage must comply with industry standards and can be coupled with a share of profits exempt from employment taxes.

Who Are LLC Managers?

LLC managers are members who do not want to be involved with the day-to-day management of the LLC. They can hire a manager to perform these duties if they wish. Managers have no ownership stake in the LLC, but they are employees and may be the president or CEO. They are usually paid via salary, as opposed to a percentage of the LLC's profits.

What Is an LLC Operating Agreement and Why Should You Have One?

Some states require an operating agreement, which is a contract that states how an LLC will manage itself. The advantage of having an operating agreement is that the members can decide which decision are made by whom and how.

How Do You Hire and Fire LLC Managers?

The terms for hiring and terminating LLC members can be written into the operating agreement. If no such terms are laid out, the default procedure will come from state LLC statutes. These usually require a majority vote of LLC members.

Who Are the Officers of an LLC?

LLCs typically have the following roles:

  • President
  • Vice president
  • Secretary
  • Treasurer

What Are the Duties of the Vice President?

At a growing LLC, a vice president may be necessary and responsible for the following:

  • Heading a specific branch, like marketing
  • Reporting to the president
  • Running board meetings in the absence of the president
  • Creating meeting agendas with the secretary
  • Depending on the size of the company, assisting with secretarial duties such as keeping track of financial records, meeting notes, and notices

What Are the Limitations on the Role of Vice President?

While the role of the vice president is an important one, it does not necessarily lead to the role of president after the president leaves. The board decides the president's replacement and handles the firing any officers, including the vice president.

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