What Is the Governor of an LLC: Everything You Need to Know
When starting an LLC, the owners need to know the principal officers who will be running the company and stakeholders rights to avoid conflicts of interest.3 min read
What is the governor of an LLC? When starting an LLC, business owners need to know the principal officers that will be involved in running the company and the rights of stakeholders to avoid conflicts of interest.
Who Are LLC Members?
LLC members are the equivalent of a corporation's shareholders. Membership interests may be distributed to members according to the LLC's member control agreement. The properties of the LLC are separate from that of its members, but the members receive their share of the LLC's profits and losses according to the value of their contributions except where the articles of organization of the LLC states otherwise.
The LLC Act provides that membership interests can either be financial or governance rights.
Governance rights include the following:
- The rights of all LLC members which are not economic rights.
- The right of members to assign financial rights.
- The right to vote during the election or appointment of governors and other matters which does not involve distributions or profits and losses sharing.
Financial rights give members the power to share profits and losses as well as distributions. Financial rights can be transferred freely, but all the members have to consent to the transfer.
It is not necessary for the members to manage the LLC but the approval of members is needed in certain situations such as an amendment to the LLC's articles of organization, selling of the company's assets, or dissolution and so on.
Who are LLC Governors?
The governor of an LLC is responsible for the management of the company's business and affairs. In an LLC administered by a member, the governor is a member, while he is a manager in an LLC managed by a manager.
An LLC must have a minimum of one governor or more. The members appoint an LLC governor, and the appointment is renewed every year. LLC governors can serve a maximum of five years, except if an agreement states otherwise.
Who are LLC Managers?
LLC managers carry out the daily task of running the business and implement the board of governors' directives. An LLC requires at least one or more individuals running the business.
A manager is expected to discharge his or her duties in good faith and the best interests of the LLC, with the dedication and diligence any forthright person will exhibit in similar situations.
Board of Board of Governors
Board or board of governors refer to an LLC's board of governors which elects to be board-managed or its equivalent if it's a foreign limited liability company.
Board-managed refers to an LLC which elects to be governed by a board of governors under § 48-205-101(5).
Governing body refers to
- A board-managed LLC's board of governors.
- The members of an LLC that is member-managed.
- The board of directors of a corporation.
How Is an LLC Governed?
An LLC can be governed by the members, in which major decisions are put to the vote. The members can also designate a non-member as the manager, but this is usually not the case in member-managed LLCs.
An LLC can also be manager-managed. In such circumstances, members can only elect the manager who holds the decision-making powers over the company, but can't exercise governing rights over the LLC. Board-managed LLCs appoint a board of governors which handles the management of the company.
A certificate of formation, or articles of organization, and an operating agreement are used for governing an LLC. The operating agreement is a detailed contract legally binding on the members which spells out members' rights including economic (cash flow, sharing profits and losses), governance rights (such as electing managers and voting process), and rights between members such as limitation of ownership transfer.
Members are free to organize an LLC as they deem necessary. It can use an informal or corporate structure or a mix of both systems.
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