Who Can Be a Member Of An LLC: Everything You Need to Know
Understanding who can be a member of an LLC is an important step in forming your new business. While state requirements for LLC corporations are typically quite relaxed, there are certain state-specific regulations you may need to be aware of.3 min read
2. Who Can Be a Member of an LLC?
Understanding who can be a member of an LLC is an important step in forming your new business. While state requirements for LLC corporations are typically quite relaxed, there are certain state-specific regulations you may need to be aware of. Before deciding on an official company structure, you'll want to make sure you have a solid understanding of your local state requirements for this type of business.
Who Are the Members of an LLC?
Limited liability companies, or LLCs, are a relatively new type of company structure from a legal standpoint. This type of company offers members a measure of liability protection, similar to what you'd find in larger corporations. In addition, certain features commonly associated with partnerships can also be taken advantage of when forming a limited liability company.
The members of an LLC are the owners of the company. Every member of the company is able to claim ownership and, unlike corporations, this business structure does not have set ownership shares. Establishing an LLC is done on the state level by filing official Articles of Organization, or your state's specific equivalent to these forms. Federal agencies, such as the IRS, are not involved in the process of forming this type of business.
Depending on how many members will be in your company, there are two types of LLCs that may be formed:
- Single-member LLCs
- Multi-member LLCs
The only major difference between these two is in how they are taxed. There is no difference in how the business is set up and run. Additionally, there is no limit to the number of members a multi-member LLC may have, with one exception. If your LLC is taxed as an S-corporation, the company may have no more than 100 shareholders at any given time. In addition, if you do choose to be taxed as an S-corporation, each shareholder must be an individual. LLC members cannot be a corporation or business of any kind in this particular situation.
Who Can Be a Member of an LLC?
No matter what state you're doing business in, the only requirement for individual LLC members is that they must be at least 18 years of age. LLC members are not required to be United States citizens. Members are not necessarily required to be individuals. Other organizations may also be members, such as the following:
- Pension plans
- Another LLC
- A corporation
- A holding company that owns the LLC
Here is a more comprehensive list of people and organizations that may be an LLC member, not including those already listed above:
- A United States citizen
- An individual who is not a U.S. citizen
- Legal immigrants
- United States foreigners
- A non-corporate legal entity
- An individual retirement account (IRA)
As mentioned earlier, there are some restrictions to who may be an LLC member if the company is taxed as an S-corporation:
- A partnership
- An individual who is not a United States resident
- A corporation
In some states, you may be required to identify specific LLC members, but this is not a requirement in every state.
However, if you're operating a Professional LLC, you will most likely be required to identify members and provide proof of relevant licenses for examination and approval by the state. In this case, members are required to hold any necessary licenses and certificates related to the Professional LLC's areas of expertise. A Professional LLC formed with the intent of operating a dentist's office, for example, may only have members who are licensed dentists in the company's state. In addition, not every professional is able to form a PLLC in every state.
Any combination of entities is allowed to be members of an LLC. Membership changes are handled from inside the company based on the company's operating agreement. In Delaware, specifically, LLCs are formed without providing a list of names and addresses for each member. This is not a requirement when filing your Certificate of Formation in Delaware, so many companies choose to simplify the process by skipping this step. This makes handling things like adding and removing members, making changes to the ownership structure, and determining who will handle daily operations much simpler. Everything is addressed in the company's operating agreement.
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