The Definition of an LLC Member

By William Pirraglia

An LLC member is an owner of the company. All owners of LLCs are classified as members. Just as the owners of a partnership are members of the company, LLC owners are legally members of the LLC. The rights and responsibilities of LLC members are specified in the operating agreement, but also defined by state LLC regulations. Since LLCs are state, not federal, creations, each state can have their own specific regulations, but owners in all LLCs are members.

An LLC member is an owner of the company. All owners of LLCs are classified as members. Just as the owners of a partnership are members of the company, LLC owners are legally members of the LLC. The rights and responsibilities of LLC members are specified in the operating agreement, but also defined by state LLC regulations. Since LLCs are state, not federal, creations, each state can have their own specific regulations, but owners in all LLCs are members.

Managing Members

Managing members are those owners who are also empowered to manage the LLC. They are differentiated from "passive" members, who are investors only. Should the owners choose to have one or more of their group manage the day-to-day LLC operations, they are called managing members. They are authorized to make purchases, sign contracts, and obligate the LLC to binding agreements.

Ready to start your LLC? Start an LLC Online Now

Manager Managed LLCs

LLC members have two management choices. These options are called "member managed" or "manager managed" LLCs. In most states, the owners must select one option at the formation of the company. LLC managers are like CEOs in corporations. They are employees, but not members. Their authority level to manage the LLC is granted by the members. An LLC manager may have the total authority of a managing member or may have specific responsibilities that are somewhat less than those of a managing member.

LLC Members Like Partners

LLCs are hybrid organizations, having some of the characteristics of corporations and partnerships. While members are owners, like corporation stockholders, their rights and responsibilities are more like the partners in a partnership. For example, unless modified by the LLC operating agreement, all members must agree on major decisions, for example, asset purchases. Requiring unanimous agreement is more akin to a partnership than simply having corporation stockholders vote on issues with the majority making major decisions.

What Members Do

As owners, LLC members may participate in day-to-day management or simply be passive investors. Managing members act as CEOs of the LLC with authority to execute purchases and contracts, binding the LLC to legal agreements. At year's end, the LLC will "pass through" all profits to members, to be included in their personal income for tax purposes. The amount of profit/income members receive will match their ownership percentage. For example, a member owning 40 percent of the LLC will receive the same percentage of net profit to be taxed as personal income.

Ready to start your LLC? Start an LLC Online Now
Can I Have a Partner With an LLC?

References

Resources

Related articles

S Corporation Structure

An S corporation is a tax designation that a business must apply for with the Internal Revenue Service. Used for small businesses, the benefit of the S corporate designation is that it allows the business to be taxed as a partnership. To apply for S corporate status, the business must submit a completed Form 2553 within 2 months and 15 days after the beginning of the first tax year that it wants to be treated as an S corporation.

Which Is Better: an LLC or an LLP?

Many businesses that want the benefits of corporations without the complex tax rules and expensive startup costs involved with that type of entity choose to form as a limited liability company, or LLC, or a limited liability partnership, or LLP. Potential business owners must weigh the pros and cons of each structure when deciding which is better for their company. While LLC legislation is widespread, not all states have LLP laws.

General Partnership Vs. LLC

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of operating a company. One option is to structure the business as a limited liability company; another route is formation as a general partnership. Differences in tax liability, as well as personal liability for members regarding debts and other legal obligations, are the defining characteristics of what separate these designations.

LLCs, Corporations, Patents, Attorney Help

Related articles

An S Corporation Vs. a Partnership: Pros & Cons

Whether you choose to run your business as an S corporation or a partnership has a number of significant effects, ...

Tax Differences of LLCs & PCs

A limited liability company is a company, typically with a small number of owners, known as members, that enjoys the ...

Benefits of a Limited Liability Company

Limited liability companies (LLCs) offer several benefits because they share characteristics with several types of ...

Partnership Profit-Sharing Agreements

When two or more people decide to start a business for a profit, the resulting agreement is called a partnership, ...

Browse by category
Ready to Begin? GET STARTED