Key Takeaways

  • The owners of a limited liability company are called members, and they can be individuals, corporations, or even other LLCs.
  • LLC members may be classified as managing members (actively involved in operations) or passive members (primarily financial investors).
  • Titles for LLC owners are flexible—while corporations use “CEO” or “President,” LLCs allow members to adopt titles such as “Member,” “Managing Member,” or even “Owner,” provided they don’t mislead stakeholders.
  • LLC ownership can be divided into percentages or membership units, often tailored in the operating agreement to reflect contributions or roles.
  • An LLC may have a single member (SMLLC) or multiple members, with state laws generally requiring at least one.
  • Rights and responsibilities of members, including voting power, distributions, and liability, are governed by the operating agreement

The owners of a limited liability company, also called an LLC, are the members who formed the business and keep it running.

What Is an LLC?

A limited liability company is a relatively new business structure in the United States. There are a few requirements that are the same for LLCs in every state:

  • Articles of organization must be filed.
  • This business must have at least one owner.
  • The name must be original and unique.
  • The company must obtain a registered agent.

Who Are the Members of an LLC?

Corporations have shareholders, partnerships have partners, sole proprietorships have, well, sole proprietors, and LLCs have members. These are all essentially the owners of these different business entity types.

The roles of members in an LLC are a bit more flexible that the roles of owners in other business structures. Member duties and titles will depend a lot on the size and organization of the LLC. LLCs can have members that act as managers, partners, and passive investors.

Owners of an LLC have a few different names to choose from. Other structures required the head of the company to adopt the title of CEO or President, but LLCs aren't bound by such rules. This is appealing to business owners who want their company to get away from the corporate world.

Titles and Designations for LLC Owners

While the owners of a limited liability company are called members, they are not restricted to one standard title. Unlike corporations, which typically require “President” or “CEO,” LLC members may choose from a range of titles. Common options include:

  • Member – The most basic and legally accurate term.
  • Managing Member – Used when an owner takes an active role in managing the company.
  • Owner – Simple and widely understood, though some states encourage using “member” in formal contexts.
  • Principal or Partner – Less common but sometimes used in professional or small businesses.

The chosen title should be consistent with the LLC’s operating agreement and not mislead outsiders about the authority of the person using it.

Managing Members

If an LLC's members take an active role in the daily operations of the business, they are managing members. An LLC can define itself as either member-managed or manager-managed. Basically, the business will be run by all of its members, or those members will hire a manager or choose one of the members to fill the role. Managers make important business decisions that keep the company running smoothly on a regular basis.

The shares that a managing member takes home can be treated like a salary and are therefore subjected to self-employment taxes, like Social Security and Medicare.

If a manager isn't chosen or hired, the IRS (Internal Revenue Service) assumes the LLC is member-managed and that all of the members are taking on management roles.

Passive Members

If the LLC chooses to become manager-managed, whether by hiring out or choosing from within, all non-managing members become "passive members." These members are like the limited partners in a partnership. They report their profit distributions as passive shares on their taxes, which are not subject to employment taxes.

Basically, the only involvement a passive member has in the business is financial. They can only be held liable for company debts or legal trouble up to the amount of their capital contribution, or initial investment. According to the Uniform Limited Liability Act, formed in 1996, the passive members of an LLC do not have rights or authority over the management or company operations. However, if the LLC wants to grant such rights to their passive members, they may say so in their operating agreement.

Member Rights and Responsibilities

The rights of LLC members extend beyond their investment. Unless otherwise limited by the operating agreement, members typically have the right to:

  • Vote on significant company decisions, such as mergers or dissolution.
  • Receive distributions of profits.
  • Review business records and financial reports.
  • Transfer or sell their membership interest, subject to operating agreement restrictions.

Responsibilities often include providing capital contributions and adhering to the operating agreement. However, liability remains limited to their investment, protecting personal assets from company debts.

Ownership Percentages

An LLC can decide how it wants to handle ownership percentages. Typically, this is done using ownership percentages or membership units. These are like the stock shares of a corporation.

LLC owners have the right to vote on company matters and share in its profits. Corporations require specific share distributions based on the initial investment amounts of shareholders. Ownership percentages are a bit more flexible with LLCs. A member with managerial duties may be granted a larger ownership percentage than another who gave a large contribution amount but has no managerial duties.

Different levels of interest are also an option for an LLC's structure. These are also called interest classes and can denote the type of involvement an investor wants. Some classes may offer more voting power than others and some may be be simple, uninvolved classes that allow for passive members.

Membership Units and Classes

LLC ownership can be represented as membership units, similar to corporate shares. LLCs may also establish different membership classes with varying rights. For example:

  • Voting vs. Non-Voting Members – Some members may hold financial interests only, while others have decision-making power.
  • Preferred Classes – Certain members may be entitled to priority distributions of profits.

These structures allow LLCs to attract different types of investors while maintaining flexibility in governance and financial arrangements.

How Many Owners Can an LLC Have?

LLCs are a mix of two older entity types: corporations and partnerships. They offer the liability protection that comes with corporations and the ownership flexibility that come with partnerships. The laws surrounding LLC structure and organization differ from state to state, but most require LLCs to have at least one member, some require two.

Single-Member vs. Multi-Member LLCs

LLCs may be structured with just one owner (a single-member LLC) or multiple owners (multi-member LLC).

  • Single-Member LLCs (SMLLCs): Common among entrepreneurs and small businesses. They offer liability protection but are typically taxed like sole proprietorships unless the owner elects corporate taxation.
  • Multi-Member LLCs: More common for partnerships or family businesses. These LLCs divide profits and responsibilities among members according to the operating agreement.

There is no maximum limit on how many members an LLC can have, making it a flexible structure for small startups and larger businesses alike.

Frequently Asked Questions

  1. What are the owners of an LLC called?
    The owners of a limited liability company are called members, regardless of whether the LLC has one or multiple owners.
  2. Can an LLC owner call themselves a CEO?
    Yes, members can adopt titles like CEO or President, but “member” or “managing member” are more accurate and commonly used.
  3. Do all LLC members have voting rights?
    Not necessarily. Voting rights depend on the operating agreement and may differ between membership classes.
  4. Can an LLC have just one owner?
    Yes, many LLCs are single-member LLCs, which still provide liability protection but may be taxed like sole proprietorships.
  5. What is the difference between a managing member and a passive member?
    A managing member is actively involved in daily business decisions, while a passive member contributes financially but does not manage operations.

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