The Definition of an LLC Member

By Michelle Kaminsky, J.D.

The Definition of an LLC Member

By Michelle Kaminsky, J.D.

A limited liability company (LLC) is a type of business entity that offers pass-through federal taxation and limited personal liability to its owners, who are often called members. Simply put, LLC members are the company's owners, and owners may have different duties and responsibilities depending on the LLC's operating agreement and state law governing LLCs.

Businesspeople sitting around conference table

LLC Member Requirements

In most states, most organizations and anyone 18 years of age or older—even non-United States citizens—can be LLC members.

In a professional LLC (PLLC), all members must be licensed or registered professionals in the state. For example, in a law-practice PLLC, an attorney's husband, who is a doctor, cannot be one of the PLLC's members.

Identification of Members

An LLC with only one member is called a single-member LLC, and all states require the name of that owner in the formation documents. If the LLC has more than one member, it is a multiple-member LLC. Some states require that the company identify all LLC members when registering the company with the state's agency that regulates businesses, while others do not.

Managing Members vs. Passive Members

Most states require LLC owners to decide during formation whether the company will be managed by its own members (“member managed") or by outside managers (“manager managed"). Generally, LLC owners must include this information in the filing documents.

As the term suggests, a managing member is an LLC owner who also plays a role in managing the company. The LLC's operating agreement should define the various tasks and responsibilities of managing members, which may include anything from signing legally binding contracts to making purchase orders. LLC managing members generally owe a fiduciary duty to nonmanaging members of the company, though the operating agreement may adjust or eliminate this duty.

A passive member, on the other hand, is simply an investor who does not take part in the day-to-day operations of the LLC.

The company's bylaws also grant specific authority to any LLC managers hired from outside the group of owners. Those powers may be equal to or less than those of a managing member.

LLC Member Liability

All LLC members enjoy limited liability for business debts, with some exceptions. This protection would not hold up, for example, if an LLC member acted illegally or personally guaranteed business loans for the company.

LLC Member Taxation Considerations

An LLC offers pass-through federal taxation to its members, which means that the company's profits pass through to owners, who are then taxed on their personal income tax returns.

In a single-member LLC, all profits pass through to the one owner. The Internal Revenue Service considers the sole owner of an LLC to be self-employed, which means they are also responsible for self-employment taxes.

In the case of a multiple-member LLC, profits pass through to individual owners according to their ownership percentages as defined in the company's operating agreement. For example, if an owner has a 30-percent ownership interest in the LLC, that same percentage of the company's profits passes through to them as personal income.

Overall, the company's operating agreement, in conjunction with applicable state law, defines an LLC member's duties regarding taxes, management, and other responsibilities.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.