Principal LLC: Everything You Need to Know
A principal LLC is a person who signs legal paperwork on behalf of an LLC. 3 min read
A principal LLC is a person who signs legal paperwork on behalf of an LLC. LLCs are formed via state laws, and the guidelines may vary. More importantly, LLCs offer greater management flexibilities while offering various tax advantages. The principal has the most to lose from the business.
In an LLC, profits pass from the LLC to members, otherwise known as pass-through taxation. Members then note losses and profits on an individual tax return and only pay taxes based on his or her share in the LLC.
The principal is also an owner in all or party of the LLC. Moreover, that person has ownership stock in various transactions. LLC owners would be considered principals, even though they may not have the same legal standing. When it comes to the president of the business, he or she functions as the organization head, usually in the form of a CEO. That person essentially directs all operations, including business activities and employees.
With that, LLCs do not need a president, and an LLC structure is defined by an articles of organization. Since an LLC is created through an agreement of all members, it may also create its own operational structure, which should be included in an operating agreement. In regards to titles, LLCs can appoint one member to run the entire business.
For sole-member LLCs, the person who owns the business can appoint himself president. Multi-member LLCs can use any company structure of their choosing, and they can give managing members various titles, such as president.
Certain states may mandate an LLC to appoint a chief manager to serve as president. While presidents get bonuses and salaries, presidents of an LLC may not take salaries since they are LLC members. Because of this, they share in the same proceeds that are distributed to members without business taxation. LLC presidents are paid through the withdrawing of the proceeds.
LLCs are designed to offer flexibilities in the following areas:
If you own and operate the LLC, you will discover that you have several options regarding the title you can give yourself. You do not have to call yourself a CEO or president, as you would sound like the owner of a corporation instead of an LLC. Bottom line, your starting title within an LLC would be a member. Within the LLCs, members can be divided into two categories:
- Member-Managers: Member managers are owners who take an active role in managing a business, usually without the assistance of managers
- Manager-Managers: These are managers appointed by members to run daily affairs of the business.
You may abide by such a title, but it can seem confusing at times. When creating a title, you should tell the public that you are the person with sole authority to sign agreements for the company. Also, owner titles should never mislead people. Consider the following acceptable titles:
- Owner: You may use this title if your business has one or only a few co-owners. It is a simple way to convey your role within the LLC.
- Managing-Member: Such a title is better than a simple member because it tells others that you’re in the lead.
- CEO: A title that can add prestige and credibility within the LLC.
- Principal: This is a title that’s popular within many service-based firms.
- Managing Director: This can be a better alternative to CEOs or Presidents, and you may also choose other titles, such as "Technical Director" or "Creative Director."
You may wish to avoid the following titles
- Managing Partner: Any word with the word “Partner” does not signify the owner of an LLC. Also, LLCs are not the same as partnerships, and it could lead to confusion among consumers or business associates.
- Proprietor: Many sole-member LLCs may choose such a title, but it does not offer liability protections. Use “Owner” to prevent confusion
- Imaginary Titles: Do not use made-up titles, such as “lead coordinator.” Doing so does not help the public know what your role really is. On the other hand, you can combine the titles, such as lead “CEO/Lead Coordinator.”
- Outlandish Titles: While goofy titles such as “Supreme Elf” or “Overlord” may go over well with a core demographic, a traditional title is better when engaging in larger deals, especially deals with foreign business associates.
If you have more questions on a principal LLC position, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers have graduated from some of the best law schools in the nation and will help you determine the right title that suits your position. Moreover, they will help you choose the right legal entity that aligns with your business goals.