LLC Voting Rights

By David Ingram

Limited liability companies (LLCs) are owned jointly by a number of partners, called members. Members have the right to vote on a range of important company decisions, ensuring that members have a voice in the strategic guidance of the companies they own. Members do not have express voting rights granted by law; rather, individual members' voting rights are set forth by the members themselves in an LLC operating agreement. Establishing voting rights that are approved by all members can be vital to running an LLC smoothly and making timely strategic decisions.

Limited liability companies (LLCs) are owned jointly by a number of partners, called members. Members have the right to vote on a range of important company decisions, ensuring that members have a voice in the strategic guidance of the companies they own. Members do not have express voting rights granted by law; rather, individual members' voting rights are set forth by the members themselves in an LLC operating agreement. Establishing voting rights that are approved by all members can be vital to running an LLC smoothly and making timely strategic decisions.

Voting Issues

Limited liability company members generally vote on large-scale strategic decisions. Adding or removing members is an example of an issue that may require a vote, as is the decision to acquire a public corporation by buying shares of stock. Members can come together to vote on whether to liquidate a company in times of trouble, or to seek an acquisition partner in the corporate world. Any changes in the core business model of an LLC may also call for a vote. If a technology company's members wanted to reorient the company to focus exclusively on cloud-software services, for example, members would most likely have to vote on the issue.

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LLC Membership

All LLCs must have at least two members, but there is no maximum number. The LLC form of organization allows more than just individuals to become LLC members. Corporations, trusts and other LLCs can be official LLC members. Because of this, large companies can create subsidiary LLCs to section off different parts of their businesses, providing a hedge of liability protection for the parent companies. When an LLC is owned by several individuals, voting rights are generally split up between the members. However, if an LLC is set up as a subsidiary of a larger company, it is more likely that the parent company will retain sole voting rights, with decisions ultimately made by executives or board members of the parent company.

LLC Operating Agreement

Operating agreements set forth the rights, rules and procedures for voting. Voting procedures stipulate how often members come together to vote on strategic issues, how unplanned votes can be organized and how voting is actually administered – whether in person, remotely or a combination of both. Operating agreements also set forth what constitutes a passed resolution – whether a consensus, a majority or the decision of an individual. Voting rights deal specifically with each member's weight in voting procedures. Limited liability companies can have both managing members who are active in running the company, and non-managing members who provide resources and contacts to the company in return for the right to draw on profits. In these cases, managing members may retain most voting rights dealing with strategic company decisions, while non-managing members only have the right to vote on issues of company liquidation or acquisitions.

Changing Voting Rights

Since LLC members jointly determine their own voting rights, members can choose to alter voting rights at any time. Operating agreements are not required by law, so there is no required legal process for altering the voting rights set forth in the agreement. Members can either create and sign an amendment to the operating agreement or choose to draft a new agreement.

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Operating Agreements for a Member-Managed LLC

References

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A Sample of an Operating Agreement for an LLC

While not usually a state requirement, an LLC operating agreement is its most important document. It contains the critical information about the composition of the LLC and also serves as the primary management document for company operations. All operating agreements should contain the same basic information, but LLC owners can add further definitions and explanations of ownership and operational structure. The more complete the operating agreement, the more limited liability protection for the LLC owners.

Define LLC

A limited liability company (LLC) is formed under state law. In many situations this is a desirable way to structure a business because of the liability protection provided to its members, the informal rules for governance and tax advantages. An LLC is often described as a hybrid between a corporation, which offers limited liability, and a partnership, which enjoys flexibility and ease of management. Although an LLC is not a recognized business structure under federal tax law, this works to the advantage of the LLC members because it gives them some flexibility in choosing the tax status for the LLC.

Can I Have a Partner With an LLC?

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

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