A limited liability company, or LLC, is a flexible form of business association that combines the limited liability of a corporation with the pass-through taxation and simple filing requirements of a partnership. The partners of an LLC who have an ownership stake in the company are called members. While state laws vary and the default duties and obligations of an LLC member vary, LLC members may draft an operating agreement to define their own rights and obligations in operating an LLC. Some states, including California and Missouri, require an LLC to draft an operating agreement.
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Who May Serve as an LLC Member
Under the laws of all states, any individual of a majority age may serve as a member in an LLC. Additionally, other business organizations, such as partnerships, LLCs and corporations, may also serve as the member of an LLC. When a business organization serves as the member of an LLC, they must typically make more detailed disclosures pertaining to the actual individuals who own the LLC. All states and the District of Columbia permit the creation of single-member LLCs, in which there is only one LLC member.
Member Management of an LLC
The LLC is a flexible form of business organization that allows the members to determine how they want to manage their company. When filing the articles of organization, the individual organizing the LLC must choose whether the day-to-day management will be done by the members or by managers, who are company employees that do not have an ownership stake in the LLC. LLC members have the choice of managing the company themselves, or limit their involvement to being an investor by hiring employees or appointing a board of managers, similar to a board of directors in a corporation, to make management decisions.
LLC Member Duties
In operating the company, LLC members owe several duties to each other and to the LLC. LLC members owe the fiduciary duty of care, which requires LLC members to act as a “reasonable person” in performing business acts and for the best interests of the LLC. LLC members also owe the duty of loyalty, which prevents LLC members from taking economic actions harmful to the LLC, such as dealing with competitors or harming the LLC financially.
When Are LLC Members Disclosed
Under the LLC statutes in most states, the individuals tasked with the management of an LLC must be disclosed to the state agency responsible for registering business organizations. For most state governments, this agency is the secretary of state or department of state. Additionally, all states require an LLC to make a yearly filing of all income received and expenses garnered by the LLC. The annual LLC reports for some states require disclosure of a list of either all members or all managers. If the LLC is a member-managed LLC, this would also require disclosure of the identities of LLC members.
References & Resources
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