The Definition of an LLC Member

by William Pirraglia
LLC members are owners, who may be managers or just investors.

LLC members are owners, who may be managers or just investors.

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An LLC member is an owner of the company. All owners of LLCs are classified as members. Just as the owners of a partnership are members of the company, LLC owners are legally members of the LLC. The rights and responsibilities of LLC members are specified in the operating agreement, but also defined by state LLC regulations. Since LLCs are state, not federal, creations, each state can have their own specific regulations, but owners in all LLCs are members.

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Managing Members

Managing members are those owners who are also empowered to manage the LLC. They are differentiated from "passive" members, who are investors only. Should the owners choose to have one or more of their group manage the day-to-day LLC operations, they are called managing members. They are authorized to make purchases, sign contracts, and obligate the LLC to binding agreements.

Manager Managed LLCs

LLC members have two management choices. These options are called "member managed" or "manager managed" LLCs. In most states, the owners must select one option at the formation of the company. LLC managers are like CEOs in corporations. They are employees, but not members. Their authority level to manage the LLC is granted by the members. An LLC manager may have the total authority of a managing member or may have specific responsibilities that are somewhat less than those of a managing member.

LLC Members Like Partners

LLCs are hybrid organizations, having some of the characteristics of corporations and partnerships. While members are owners, like corporation stockholders, their rights and responsibilities are more like the partners in a partnership. For example, unless modified by the LLC operating agreement, all members must agree on major decisions, for example, asset purchases. Requiring unanimous agreement is more akin to a partnership than simply having corporation stockholders vote on issues with the majority making major decisions.

What Members Do

As owners, LLC members may participate in day-to-day management or simply be passive investors. Managing members act as CEOs of the LLC with authority to execute purchases and contracts, binding the LLC to legal agreements. At year's end, the LLC will "pass through" all profits to members, to be included in their personal income for tax purposes. The amount of profit/income members receive will match their ownership percentage. For example, a member owning 40 percent of the LLC will receive the same percentage of net profit to be taxed as personal income.