Does an LLC Always Have Members?

by Joseph Nicholson
    The owners of a multiple member LLC are essentially business partners.

    The owners of a multiple member LLC are essentially business partners.

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    A member of an LLC is someone with an ownership interest in the company, and can be an individual or another business, but there must always be at least one member for an LLC to be a valid business entity. The number of members affects how the IRS treats the company for income tax purposes.

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    Single-Member LLC

    A single-member LLC is one in which there is just one owner of the company. The IRS treats a single-member LLC as a sole proprietorship by default, but the member can request to be taxed as a corporation instead. Though the owner of a single-member LLC reports all the profit or loss on her own tax return, the LLC itself is regarded as the taxpayer for employment and certain excise taxes.

    Multi-Member LLC

    An LLC with more than one member is called a multi-member LLC, and is, by default, taxed as a partnership. These businesses are usually organized like partnerships, too, with an Operating Agreement describing the mutual rights and responsibilities of the members. State law determines how each member's interest in the company can be defined, but generally each member can own "units" that resemble stock in a corporation, or simply hold a percentage share in the overall company, like some partnerships. The Operating Agreement can also describe the members' voting rights in the business.

    Managers

    The managers of an LLC are those who oversee the business' operations. Depending on how the LLC is organized, some or all of the members can act as managers. Alternately, some or all of the managers can be like silent partners and merely collect their share of the business' profits while other members or hired third parties function as managers.

    Limited Liability

    A member of an LLC is generally shielded from personal liability for the debts or obligations of the business. This is not an absolute right, however, and LLC members should take steps to preserve the "veil" of limited liability that distinguishes themselves from the business. According to Weiss & Associates, P.C., these steps should include keeping personal and business funds separate, and keeping records of the company's finances similar to those required of a corporation. Additionally, Business Owner's Toolkit recommends to avoid intentionally underfunding the business so as to prevent it from paying its creditors.

    About the Author

    Joseph Nicholson is an independent analyst whose publishing achievements include a cover feature for "Futures Magazine" and a recurring column in the monthly newsletter of a private mint. He received a Bachelor of Arts in English from the University of Florida and is currently attending law school in San Francisco.

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