What Are the Owners of an LLC Called?: Everything to Know
The owners of an LLC are called its members. An LLC member can assume a position resembling a partner, passive investor, or a sole proprietor.3 min read
2. Titles That Are Better Avoided
3. LLC Members Versus Member Managers
4. Some More LLC Titles
What are the owners of an LLC called? The owners of an LLC are called its members. Depending upon the size of the organization, an LLC member can assume a position resembling a partner, passive investor, or a sole proprietor.
Some of the names that members of an LLC can take up include the following:
- Sole Proprietor: The IRS considers the owner of a one-member LLC as a sole proprietor. Despite protection of their personal assets against the debts of the company, a single-member LLC owner must be responsible for all functions of the LLC. They cannot draw salary since the business profits are considered personal income and are subject to self-employment taxes.
- Partners: All LLCs with more than one member are treated as partnerships for the purpose of federal taxes. Any profit or loss arising from the business is divided among the partners in proportion to their personal investment and level of involvement in business activities.
- Member Managers: According to the IRS, any individual with the authority to make decisions with regards to the management of the business can be termed as a member manager. The IRS requires a member manager to sign the informational return in Form 1065. If an LLC does not assign a member manager, the IRS considers all the owners as member managers.
- Passive Members: A passive member's involvement in an LLC is only by virtue of their initial investment. Passive members have no rights whatsoever over the management or the general operating procedures of an LLC. A passive member's share of profit is free from self-employment taxes.
The fact that one is not bound by hard and fast rules when it comes to naming the various positions of responsibilities in an LLC works to its advantage, especially in the case of startups where the entrepreneurs would prefer keeping a low-key title rather than high-sounding corporate terms like CEO and president.
Preferable Titles for LLCs
The primary purpose of any official title is to convey the exact nature of your job and responsibilities. Accordingly, your title should reflect your authority and the decision-making power that you yield. In addition to this, your title should not be misleading or confusing. If there are only a few members in an LLC, the title of owner would be enough to clarify your position. Similarly, terms like principal, managing member, and president leave no space for assumption when it comes to the exact role of an individual in an LLC setup.
Titles That Are Better Avoided
Some of the titles prevalent in today's LLC structure are such that you should better avoid them in order to aid clarity and get rid of redundant titles that do not make sense.
- Managing Partner: Managing partner, or for that matter any title with partner, should be a no go as far as titles in LLCs are concerned. The term partner suggests that you are liable for any mishaps in the operational procedure of the LLC even if you are not a party to the decision that led to it.
- Proprietor: This is yet another popular title in the market today. Just like the term partner, the title of proprietor does not provide any protection from liability.
- Some fun titles popular among millennial startups may be attractive to a certain demographic but may hamper a pan-demographic appeal. You should avoid them, too.
LLC Members Versus Member Managers
Anybody with an ownership interest in an LLC is a member. Unless specifically mentioned, all the members of the LLC have an active role to play in the business operations of the business. In some cases, one or more members are designated to oversee the operations. These members are then referred to as managing members.
Some More LLC Titles
- Shareholders hold shares of the LLC but have limited rights when compared to a member.
- You may appoint corporate officers such as vice president and treasurer, but their power would be determined by the members.
- Registered agents are usually a third-party appointed to handle official governmental documents on behalf of the LLC.
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