What Are Directors Called in an LLC?

By William Pirraglia

Unlike a corporation, an LLC does not have a formal board of directors. LLC owners are called "members." LLCs should strongly consider authorizing a board of "advisors" which functions like a classic board of directors. While an LLC can have one or more managers who are also employees, they may also have "managing members" who serve the function of a typical board of directors.

Unlike a corporation, an LLC does not have a formal board of directors. LLC owners are called "members." LLCs should strongly consider authorizing a board of "advisors" which functions like a classic board of directors. While an LLC can have one or more managers who are also employees, they may also have "managing members" who serve the function of a typical board of directors.

Members

Most people who function as directors in smaller LLCs are also members, or owners. Since the owners tend to have both money and time invested in their LLC, serving as de facto directors is a natural function. Even if there is a named managing member, other members, unless prohibited by the operating agreement, have input into directing the operations of the LLC.

Ready to start your LLC? Start an LLC Online Now

Not Members

If LLC members want certain people to become official LLC advisors, they can attract valuable individuals who are not members of the company to act as directors. However, if they are not currently members of the LLC or close family or friends, the LLC may need to create some incentive to attract the advisors, and must offer these valuable individuals a good reason to serve as advisors and perform the functions of a corporate board of directors.

Director/Advisor Incentives

If the LLC has good cash flow, you may want to establish a stipend or fee for your directors/advisors to serve, attend meetings and offer valuable input. In other circumstances, consider giving your advisors equity, or ownership, in the LLC, making them members. However, think carefully about this option, as you'd be giving your advisors a high level of control. You might not be comfortable with this option, as your advisors are also owners, with all rights and privileges thereof.

Considerations

Since the original purpose of an LLC was to offer personal asset limited liability to the participants of a partnership, this structure was created to mirror small groups that typically formed partnerships. The limited partnership, or LP, format originally attempted to satisfy the desire to limit liability and, in some situations, still works this way. However, the members of an LLC have more personal asset protection than partners. LLC directors, or advisors, who are also members are often more willing to serve because they receive this added limited liability protection.

Ready to start your LLC? Start an LLC Online Now
The Definition of an LLC Member

References

Resources

Related articles

Does an LLC Have to Have a President or CEO?

A limited liability company, or LLC, is a form of business organization popular among individuals looking to start a small business. Unlike a corporation, which requires the appointment of a board of directors, an LLC does not require managers, such as a president or CEO. The owners of an LLC are free to determine whether they will hire a president or CEO to run the LLC.

Delaware LLC Act

Limited liability companies, or LLCs, are business organizations that provide a lot of flexibility for the investors and managers who form them. LLCs share some characteristics with corporations, partnerships and sole proprietorship, and are therefore typically referred to as “hybrid business entities.” The Delaware LLC Act, found in Chapter 18 of the Delaware Code, sets out Delaware state law for how to form an LLC in the state, as well as the rights and responsibilities of the LLC owners, called "members."

Difference Between LLC & LLP

An important aspect of starting a business is choosing which type of business entity to create. Two popular business entities are limited liability companies, or LLCs, and limited liability partnerships, or LLPs. Each entity has unique characteristics, but both are also similar in many ways, including the way they are taxed by the IRS.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can an LLC Be a Joint Venture?

Jurisdictions within the United States allow for the creation of a limited liability company structure to run the ...

What Are Limited Liability Companies?

Determining which type of business entity to operate under plays an important role in establishing your business ...

Can an LLC Partner Claim a Business Income As Self Employment?

From a legal perspective, there are no partners in an LLC, only owners -- who are called members. LLC members, in most ...

Can I Change an LLC From Members to Managers?

A limited liability company is an independent legal entity formed under your state’s laws. If you choose to ...

Browse by category