What Are Directors Called in an LLC?

By Jeffry Olson, J.D.

What Are Directors Called in an LLC?

By Jeffry Olson, J.D.

Terminology used in a limited liability company (LLC) is not the same as terminology for a traditional corporation. Often, this is because LLCs tend to be less formal. One example is the board of directors.

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Members

An LLC has no formal board of directors. Instead, the owners of the LLC, called members, act as an informal board of directors. This board is often referred to as a board of advisors. The members create a natural board because of their financial interest in the company.

Further, LLCs are typically owned by a small, manageable number of members. This allows all owners to have a direct voice in the operation of the company.

The members of the LLC are often employees the LLC. This provides them with inside information about what is really going on with the company, further adding to their contribution to the board.

Addition of Non-Members and Advisor Agreements

In addition to the members, it can be advantageous to add non-members to the board of advisors. It is always helpful to consider a more diverse perspective, including others outside the organization. In some cases, financial incentives for non-member advisors may be appropriate. This will attract more talented, committed advisors.

Profitable LLCs may be able to pay advisors directly. While it may be tempting to give an outside advisor an interest in the company as a financial incentive, consider this carefully. While that solution seems easy and inexpensive in the beginning, it may prove to be expensive in the future. After all, the goal of the LLC is future growth and financial success.

When adding non-members as advisors, it is helpful to formalize an advisor role for the non-member through an advisor agreement, as this establishes expectations for all involved. It should establish compensation and expectations for the advisor. Confidentiality issues should also be addressed.

Structure of the Board of Advisors

The structure of the board of advisors is much more flexible than the traditional board of directors. The board of advisors consists of members and possibly non-members as previously discussed.

Consider the skills each advisor brings to the board. What skills would a non-member bring? For example, if your LLC lacks marketing experience, consider adding a non-member with significant marketing experience. Use the advisor board to fill knowledge gaps in the company.

Frequency of Board Meetings

Consider how frequently the board of advisors will meet. Newly formed LLCs should consider monthly meetings. This allows for closer supervision and discussion of new ideas. More established LLCs may only require quarterly meetings.

Compensation for board members must account for frequency of board meetings. Outside board members cannot be expected to attend frequent meetings without compensation. Similarly, a board comprised exclusively of members brings flexibility, allowing meetings to be held whenever appropriate.

Board of Directors vs Board of Advisors

The board of advisors for an LLC may not be as formal as a board of directors for a corporation, but it does not have to be less important. Owners have a financial interest and make a logical board of directors. However, bringing an outsider onto the board of advisors can fill a talent gap and provide an important outside perspective. Thoughtful assembly of the board of advisors brings great benefits to the future of the LLC.

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.