LLC President Vs. LLC Principal

By Larissa Bodniowycz, J.D.

LLC President Vs. LLC Principal

By Larissa Bodniowycz, J.D.

One of the unexpectedly difficult parts of running a business is understanding all the business terms. When discussing limited liability companies (LLCs), two terms that often cause confusion are "principal" and "president." They both sound important but do have differences. The principal of an LLC usually owns the company, while the president usually acts on behalf of the business.

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LLC Principal

Business owners use the term "principal" in different and sometimes inconsistent ways. It can refer to someone who has named an agent to act on their behalf. It can also refer to someone with important obligations within a business. It's the word used to discuss the original amount of money a person or company borrowed or invested. Perhaps most commonly, people use the term when referring to someone who is an owner of a business.

When someone refers to an LLC principal, they usually mean the owner. However, there is a better, clearer term: member. The laws governing LLCs call owners members. Using the term "member" instead of "principal" is not just technically more accurate, it can help prevent legal headaches.

For example, if an owner signs a document with their signature followed by the term "principal," it can create legal confusion because of the term's ambiguity. If they sign the document with their signature followed by the term "member," it's clear that they have signed as a member of the corresponding LLC.

LLC President

In the business context, an LLC president is an officer empowered to act on behalf of the specific business. In most cases, the president is the highest ranking officer with the most overarching responsibility for carrying out the business's operations. While a president can be an owner of the business, it's often not the case, but when it comes to a single-member LLC, that member is the president.

It's up to the individual business to decide whether it has a president. However, LLCs must have managers. A manager's job is exactly how it sounds—they manage the operations. When the business's members serve as its managers, it's a member-managed LLC. When third parties who are not members of the LLC serve as its managers, it's a manager-managed LLC.

Managers run the day-to-day operations of the LLC. Alternatively, multiple people with different responsibilities and varying levels of authority can be named to manage the day-to-day operations of the LLC. When this happens, they might give them official titles of president, vice president, treasurer, etc.

The multiple definitions and uses for the terms "president" and "principal" (and, for that matter, many other words used in the business context) can create confusion. If you work with someone who identifies themselves as a president or principal of an LLC and you're not sure what they mean, simply ask them.

If you work for an LLC and aren't sure which title to use to refer to yourself, it's best to use "member" if you're an owner, "manager" if you're a manager, and "member-manager" if you're both.

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