Key Takeaways

  • LLC owners are called members and can be individuals, corporations, partnerships, or other LLCs.
  • Ownership structure is flexible: An LLC can be owned by one or many members, and there is no upper limit to the number of members.
  • LLC membership interest includes both economic (profit/loss) and non-economic (voting/management) rights.
  • Ownership details are determined by the LLC’s operating agreement and Articles of Organization, which outline how new members are added and how interests are transferred.
  • LLC ownership is not public in all states: In some states, members’ names are disclosed in public filings, while other states offer privacy protection.
  • Members have limited liability, protecting personal assets from business debts and claims.
  • Frequently asked questions include how to identify LLC owners, rights of different member types, and implications of ownership changes.

When it comes to who owns an LLC, it can be owned by one or more individuals, corporations, partnership firms, and other LLCs. The owners of an LLC are called its members. Each member holds a certain percentage of ownership in the LLC. Sometimes, non-economic members and assignees can also have ownership interests in the LLC.

What Is an LLC?

An LLC, or limited liability company, is a business structure with its own identity. It's a separate legal entity from its owners. An LLC offers a flexible mode of ownership, operations, and taxation. It's like a corporation in that it's a state-registered entity with its own name approved by the secretary of state and the liability of its members is limited only to the extent of their investment in the company.

Key Characteristics of LLC Ownership

LLCs are unique in that they allow flexible ownership options. Members, who are the owners of the LLC, can include individuals, corporations, other LLCs, or even foreign entities. Unlike corporations, LLCs do not issue stock, and ownership is based on the percentage of interest each member holds, typically defined in the operating agreement. The main advantages of this structure are:

  • Flexible ownership options and management roles
  • Limited liability protection for all members
  • Pass-through taxation unless another tax status is elected
  • No requirement for annual meetings or complex formalities

LLC Identification

  • The owners of an LLC are called its members.
  • An LLC member is similar to a shareholder of a corporation.
  • All members have a certain percentage of ownership in the LLC.

How Is LLC Ownership Established?

Ownership of an LLC is established through the Articles of Organization and the LLC Operating Agreement. When forming an LLC, members are usually listed in these documents, which define each member's rights and responsibilities. In most states, the Operating Agreement is the key document detailing how profits, losses, and decision-making powers are allocated among members. If there is only one owner, the LLC is referred to as a "single-member LLC," whereas two or more owners create a "multi-member LLC".

Types of LLC Ownership

An LLC can have a wide number of ownership structures. Usually, it's owned by one or a number of individuals. However, corporations, partnership firms, and other LLCs can also have a certain percentage of ownership in an LLC. In fact, any legal entity formed in any of the 50 states can own an LLC.

Types of Members and Their Rights

LLC members can be classified into several categories:

  • Active Members: Participate in management and share in profits/losses.
  • Passive Members: May invest capital but do not manage day-to-day operations.
  • Non-Economic Members: Have voting or management rights but do not receive distributions of profits.
  • Assignees: Individuals or entities who acquire an interest in the LLC but may not have management or voting rights until formally admitted as members.

These distinctions can be important when drafting your operating agreement, especially regarding voting rights, management authority, and profit allocation.

LLC Articles of Organization

You must prepare and file Articles of Organization with the secretary of state for forming an LLC. This document defines and restricts the ownership of the LLC.

How Is LLC Ownership Recorded Publicly?

Whether LLC ownership information is available to the public depends on the state of formation. In some states, the names of members and managers are disclosed on the formation documents filed with the Secretary of State. In others, only the registered agent's name and address are listed, providing a layer of privacy for owners. Business owners seeking privacy often choose states that do not require public disclosure of members’ names.

A Common Misconception About LLCs

People are often under the impression that an LLC can issue stock in the market; however, the fact remains that it cannot sell its ownership interests to the general public.

LLC Ownership vs. Management

It’s crucial to distinguish between ownership (members) and management (managers) of an LLC. Members are the owners, but they can appoint managers (who may be members or outside parties) to run the day-to-day business. In a "member-managed" LLC, all members participate in management. In a "manager-managed" LLC, selected managers handle daily operations, and other members act as passive investors. The chosen structure should be outlined in the operating agreement and formation documents.

Addition of Members

If the Articles of Organization of an LLC do not put any restriction on the addition of members, then its existing members can add a new member by the casting of votes.

Transferring LLC Ownership

LLC membership interests can often be transferred to others, but this process is governed by the operating agreement and state law. Most LLCs require existing members to approve new members or transfers of ownership. The transfer can involve economic rights (sharing in profits/losses) or both economic and management rights. Some states also require an amendment to the Articles of Organization if ownership changes.

Key considerations when transferring ownership:

  • Approval process outlined in the operating agreement
  • Possible buy-sell agreements among members
  • Tax consequences of ownership transfers
  • Updating official state records, if required

Total Number of Members

There is no upper limit on the number of members an LLC can have. However, it's required to have at least one member at all time.

Who Can Be an LLC Member?

There are very few restrictions on who can own an LLC. Members can be:

  • U.S. citizens or foreign nationals
  • Individuals, corporations, partnerships, or other LLCs
  • Trusts and estates
    Some professional service LLCs may require members to hold specific licenses, but otherwise, the rules are highly flexible.

Who Owns an LLC?

Understanding different types of LLC ownership can be helpful in determining a suitable structure for your business, and in drafting the operating agreement and other documents of your company.

Following are the major types of LLC owners:

  • Owners who have an economic interest in the company
  • Non-economic owners
  • Assignees

Identifying LLC Owners in Public Records

Finding out who owns an LLC can be straightforward in some states but difficult in others. If an LLC is required to disclose its members in the Articles of Organization or annual reports, this information can typically be found on the Secretary of State’s business registry. In privacy-friendly states, only the registered agent or organizer is listed publicly. To identify members in those cases, you may need to review the LLC’s operating agreement (if accessible) or request information directly from the LLC.

Owners With Economic Interest

LLC law in most of the states does not use the term “ownership interest”; it rather talks about “membership interest,” which is defined as a member's percentage in the profits and losses of the company and his or her rights to receive a share in the company's assets at the time of distribution.

While forming an LLC, members contribute in the form of cash, property, and services, in exchange of which, they may receive an interest in the profits and losses of the company. However, they do not yet have an interest in the capital or value of the company. Nevertheless, a membership interest is said to exist in both the cases, whether a member receives an interest in the profits or contributes in the capital of the company. All LLC members enjoy the rights and obligations set out in the operating agreement.

Non-Economic Owners

The provision for having non-economic members adds to the benefits of an LLC. Some states allow LLCs to have non-economic members, meaning that such members do not hold any interest in the profits, losses, or assets of the company. They are not required to make any capital contribution to the company. However, they may hold voting and all other non-economic membership rights.

Tax Considerations for LLC Owners

For federal tax purposes, the IRS does not recognize the LLC as a separate entity; instead, LLCs are taxed based on their membership:

  • Single-Member LLC: Generally treated as a disregarded entity, with profits/losses reported on the owner’s personal tax return.
  • Multi-Member LLC: Treated as a partnership by default, with members receiving a Schedule K-1 for their share of profits/losses.
  • LLCs can elect to be taxed as a corporation by filing Form 8832.
    Understanding these tax implications is vital for members, as it affects both personal and business tax filings.

Assignee

  • An assignee may acquire ownership in an LLC through sale or transfer of an interest.
  • He or she may hold the right to receive a share in the profits and losses of the company without being admitted as a member.
  • An assignee may not have voting, management, and other non-economic rights in the LLC.
  • The rights and interests of an assignee are governed by the operating agreement of the LLC.

Giving only the economic interest to an assignee without giving any rights in the management and operations of the company is of specific significance in a closely held LLC, where members may not want the family members of an original member to interfere in the business of the company.

Frequently Asked Questions

1. Who can own an LLC?

An LLC can be owned by individuals, corporations, other LLCs, partnerships, or even foreign entities. There are few restrictions on ownership.

2. How do you find out who owns an LLC?

You can look up ownership information in state business registries, if publicly available. In some states, ownership details are private and only registered agents are listed.

3. Can LLC owners remain anonymous?

Yes, in certain states, members’ names are not made public. Only the registered agent or organizer is listed in public records.

4. How is ownership interest in an LLC transferred?

Ownership transfer is typically governed by the operating agreement and may require member approval. Economic and management rights can be transferred separately.

5. What is the difference between a member and a manager in an LLC?

A member is an owner of the LLC, while a manager handles the daily business operations. In some LLCs, members and managers are the same; in others, managers are appointed separately.

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