Owner Of LLC: Everything You Need to Know
An owner of LLC is also referred to as a member. 3 min read
Owner of LLC
An owner of LLC is also referred to as a member. Mostly anyone can be an owner in an LLC, so long as that member is at least 18 years of age. In fact, LLC members need not be U.S. citizens. Most businesses can also be owners in an LLC, including corporations (C and S corp), other LLCs, partnerships, trusts, pension plans, and nonprofits. Some states require the LLC owners’ names be disclosed on the formation documents, whereas other states provide complete anonymity, like Delaware. If the LLC operates as a Professional LLC (PLLC), then the members’ names must be disclosed due to the requirement of all members to have a professional license in the industry in which the business operates.
LLC Ownership: An Overview
An LLC, also referred to as a limited liability company, is a popular type of business structure due to the many benefits it offers, including pass-through taxation, limited liability protection, management structure flexibility, cheaper costs, and fewer formalities. The LLC owner can call him or herself by any title, including president, CEO, etc. However, this is not required. Some examples of LLC ownership structure include:
- Family members owning a family business
- Two or more unrelated parties establishing a business venture
- A multi-member LLC that is managed by one of the members
- A multi-member LLC that is managed by a third party
An LLC can consist of one owner (single-member LLC) or several owners (multi-member LLCs). The LLC itself is formed by filing the Articles of Organization in the state in which it wants to form. Also required in the formation documents are the business name, address, member information, industry type, registered agent information, and type of management structure.
The LLC can be managed in one of two ways – as a manager-managed LLC or member-managed LLC. Generally, single-member LLCs operate as a member-managed LLC choosing to operate the business on his or her behalf. However, multi-member LLCs must determine if the members will oversee the daily operations of the business or if they will hire a third party to manage it. If they do hire a manager, the members won’t have oversight of the business operations, but will still have voting power and control over major business decisions.
What is a Major Business Decision?
If you operate a manager-managed LLC, your Operating Agreement should indicate that the owners still have control over major business decisions. Examples of some major business decisions include the following:
- Sale of property
- Budgetary decisions
- Lease contracts
- Capital expenditures
- New business ventures
- Decisions regarding dissolution or bankruptcy
- Admission of new members
- Sale of membership interest
The requirements for such major decisions should be laid out in detail in the Operating Agreement. Therefore, if you want all members to agree upon such decisions, then you should indicate that 100% of the members must agree. However, you could also provide that 50% of the members must agree on the major decisions. Certain major decisions might require greater approval percentages than other decisions. For example, regarding the sale of membership interest, the members might require that all other members approve. The members might also indicate in the Operating Agreement that any member wanting to sell his or her interest in the business must sell to another existing member. However, lease contracts might only require 50% approval.
One problem with such major decisions is that the decision cannot be agreed upon by the members, which could lead to a dispute amongst owners. But if a potential legal dispute arises, the Operating Agreement will be legally binding in court. For this reason, it is important for the members to abide by what was previously identified and agreed upon in the Operating Agreement.
An LLC can have more than one type of membership class. Different classes could have different ownership rights. For example, one class of members might have preferred rights to distributions over another class. Furthermore, another class might have greater decision-making authority over another class. Such ownership class should be identified in the Operating Agreement, which will specify the classes of ownership and membership percentages of all members.
If you need help learning about the ownership structure of an LLC, or need help forming your LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.