A limited liability company, or LLC, is a relatively modern business organization that shares characteristics with partnerships as well as corporations. All 50 states and the District of Columbia recognize LLCs as legal business structures, and have laws that govern how to create, operate and dissolve LLCs. Laws vary across states, but follow many of the same principles. Virtually all LLC owners must elect whether they intend to manage the company, or appoint or hire outside managers.
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Articles of Organization
States require LLC owners or organizers to file articles of organization, sometimes called certificate of organization or another variation, with the secretary of state. In this document, LLC owners state whether they intend to manage the LLC or have other non-owner managers. When owners, called members, of an LLC decide to manage the company’s daily operations, they are referred to as “managing members;” non-owner managers are simply called managers.
Most states do not require an LLC to create an operating agreement, but do encourage LLC members to do so. An operating agreement usually sets out the rights and responsibilities of members and managers. An operating agreement may delineate how decisions are made, which members, if any, are going to be managers, and what rights and responsibilities all parties will have in the company.
An LLC manager basically manages the LLC's day-to-day operations. LLC managers are similar to officers and directors of corporations. If the LLC elects to be manager-managed, then the managers usually have no equity stake in the company. In this scenario, LLC members act more like shareholders of a corporation, with voting rights on major issues and decisions, but little influence on the company’s daily operations.
Managing members act similarly to officers and directors of a corporation. This scenario is common in smaller LLCs, such as single-member LLCs. Usually, a single-member LLC is member managed similarly to a sole proprietorship. An LLC with just a few members can be member managed and function like a partnership. In these scenarios, members act as shareholders, officers and directors for the company.