Who owns and manages an LLC? If you’re thinking about setting up a Limited Liability Company (LLC), it’s helpful to understand the roles of LLC owners and how they’re involved in managing the business. LLCs offer the flexibility to create unique management structures, pick officer titles, distribute management responsibilities, and outline ownership interest.
In this article, we discuss common management and ownership structures for LLCs and explore the roles of LLC Members and Managers.
LLC Members: Who Owns an LLC?
The ownership of an LLC lies with its Members, who share the ownership interest in the company. The LLC Operating Agreement acts as a contract between LLC Members, outlining the rules and responsibilities for running the company. This agreement covers several crucial aspects that define the Members’ roles and their relationship with the company.
An LLC Operating Agreement should include:
- Ownership interest of each LLC Member
- Voting rights of each LLC Member
- Shares in profits and losses for LLC Members
- Arrangements for making distributions
- Management responsibilities (if any) of LLC Members
- LLC Members: A Look at Ownership Structures
At a minimum, an LLC needs one Member, known as a “single-member LLC.” For this kind of LLC, the Operating Agreement says that the sole LLC Member owns and controls everything.
LLC Members can adopt various ownership structures, and the Operating Agreement allows them to be pretty flexible when it comes to naming LLC Members. For instance, one LLC could be the single-member of another LLC (often called a “subsidiary”) as part of a holding company structure. In this case, the holding company makes decisions for the subsidiary.
Other ownership structures involving LLC Members include:
- Two or more LLC Members owning a family business
- Two or more unrelated parties starting a business venture as LLC Members
- A single-purpose managing LLC Member with one or more other LLC Members
LLCs can create different classes of LLC Members in the Operating Agreement, with different voting rights based on factors like total ownership interest, capital contributions, or management responsibilities.
Who Owns an LLC?
The ownership of an LLC lies in the hands of its Members. These LLC Members divide the ownership interest in the company, and the LLC Operating Agreement names and identifies them. This agreement is a contract between the Members that governs the internal affairs of the LLC, ensuring a clear understanding of each Member’s roles and responsibilities within the company.
LLC Members: Is There a Maximum Number?
While there’s no limit to the number of LLC Members an LLC can have, it’s generally a good idea to keep the number as low as possible to avoid conflicts among LLC Members.
LLC Members vs. LLC Managers
It’s important to know the difference between “LLC Member” and “Manager” in an LLC. A “Manager” handles the company’s daily operations but usually isn’t part of the ownership structure or involved in significant company decisions involving LLC Members.
LLC Management Structures
1.) What is a Manager-Managed LLC?
In a Manager-Managed LLC, LLC Members delegate day-to-day operations to a third-party manager, often an experienced, paid professional. The Operating Agreement outlines the manager’s authority and the rights kept by LLC Members.
2.) What is a Member-Managed LLC?
In a Member-Managed LLC, the LLC Members also take on the role of Managers. They have ownership interest and manage the daily activities of the LLC.
How to Become an LLC Member
To become an LLC Member, existing LLC Members need to hold a vote on whether to admit the new member. If the new member is approved, an Amended and Restated LLC Operating Agreement must be drafted, which includes the new Member and details their ownership percentage. This ensures that the new Member’s role and responsibilities within the company are clearly defined and agreed upon by all existing LLC Members.
What Titles do LLC Members Have?
LLCs can choose any officer titles they want. Common positions held by LLC Members in an LLC are President, Secretary, and Treasurer.
Do LLCs Have Directors?
LLCs can adopt management structures from corporate organizations, like establishing a “Board of Directors” or “Board of Managers” responsible for appointing officers. This structure can work well for family-owned businesses where siblings want to control the company by majority director vote.
Does an LLC Have a President?
Yes, an LLC can have a President, which is a popular title for the highest-ranking manager and often held by one of the LLC Members.
Does an LLC Have a CEO?
An LLC can also have a CEO. LLC Members can assign any titles they prefer to Managers or Managing-Members. While “President” is the most popular title for an LLC’s top manager, “CEO” is another option that can be held by an LLC Member if they wish.
Understanding the roles and responsibilities of LLC Members is crucial when setting up an LLC. By thoughtfully structuring the LLC’s management, ownership, and decision-making processes, business owners can create a flexible and efficient organization that caters to their specific needs. With a good understanding of the functions and limitations of LLC Members, you’ll be well-prepared to make informed decisions when forming your LLC.