LLC Partner Responsibilities

By Lisa Magloff

In a Limited Liability Company, or LLC, the owners of the business -- the business partners, which in an LLC are called members -- have only a limited responsibility for the debts and other liabilities of the company. However, LLCs are also very flexible as to how the business is managed. This means that some partners can have more responsibilities than others.

Debt and Taxes

LLC partners are only responsible for the debt that they personally guarantee, and are not responsible for the debts held by the company. This means that if the company goes into debt, the partners do not have to pay for it with their personal money. For tax purposes, an LLC is similar to a partnership. The Internal Revenue Service allows the partners in an LLC to pay the income tax of the business on their personal federal tax returns. This is called pass-through taxation, and it can mean paying a lower rate of tax on any profits from the business. Partners are therefore responsible for including the business income, loses and deductions on their personal tax returns.

Operating Agreement

Partners in an LLC are responsible for following the operating agreement, a contract between the partners that gives detailed instructions for how the company will be run. The operating agreement sets out what aspects of the business each partner is responsible for, including what financial contributions each partner is responsible for and how profits will be allocated. The operating agreement also sets out the circumstances under which the LLC can be sold or dissolved, and how a partner can be bought out.

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Management

In most LLCs, each partner participates equally in the management of the business. This type of management is called “member management.” Alternatively, in a “manager managed” LLC, one or more partners is designated to manage the company and make decisions, while the others merely share in the profits. Partners with management roles are responsible for making management decisions, and owe a legal duty of care and a fiduciary duty to the company and the other partners.

Fiduciary Duties

Any partner who acts legally on behalf of the interests of the other partners has fiduciary responsibilities and duties. In a member-managed LLC, the partners owe fiduciary duties of loyalty and care to the company and the other partners. The duty of loyalty includes the obligation to deal fairly with the company, to account to the company and not to compete with the company. The duty of care is an obligation to act in the best interests of the company, and to act with the same care as a reasonable person would act in a similar position and similar circumstances. Partners also have the non-fiduciary contractual duty of acting fairly and in good faith in all their dealings with the company.

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References

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A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

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