Choosing the right leadership for your LLC is crucial. Depending on your management structure, you may have one person oversee operations. But does this leader need to be named chief executive officer or CEO?
That’s a good question. Fortunately, this guide lays out the rules around having a CEO and the advantages to help you make the best decision for your business.
Is My LLC Required to Have a CEO?
Unlike a corporation, an LLC is not legally required to have an appointed CEO. However, an LLC may choose to give the title of CEO or president to one of its owners, also known as members.
If you’re the sole member of your LLC, you’re free to choose any title you wish. Some LLC owners prefer to be the principal or managing partner. It’s best to choose a title that fits the image of your business, as you’ll likely use it when signing official documents and contracts.
When it comes to LLCs with multiple members, it may be wise to appoint one member as CEO and make them responsible for all managerial decisions. This might be a practical choice for LLCs with members who are silent partners uninvolved in day-to-day operations.
All states allow LLCs to designate one of its members as a CEO or president, as long as the role is clearly defined within your operating agreement. Your operating agreement should also clearly outline the roles of any other LLC members.
What Is an LLC Member?
LLC owners are known as members. Regardless of their role, each member has an ownership interest in the business. In addition, members often have a financial stake in the LLC in the form of some kind of capital contribution.
For example, they may have partially funded the launch of the LLC or purchased equipment for the company. An LLC’s operating agreement outlines the rights of each member, including voting rights and their share of profits.
Member Minimum and Maximum
To register as an LLC, the entity must have at least one member. LLCs with one member are known as single-member LLCs.
There are no restrictions on how many members an LLC can have unless the LLC chooses to be taxed as an S-Corp. In that case, it can have no more than 100 members.
LLC Member Restrictions
There are a few restrictions regarding who is allowed to be an LLC member. Even minors can be members in most states. There are no citizenship or residency requirements for LLC members. Individuals can be members, as well as corporations.
However, along with placing a limit on the number of members, choosing to be taxed as an S-Corp places some restrictions on who can be a member of your LLC. For example, for S-Corp LLCs, partnerships, corporations, and certain financial institutions cannot be members or non-resident aliens.
LLC Member vs. Manager
Most LLCs give decision-making authority to managers or members. Managers might be authorized to sign key LLC documents, for example, or enter into contracts. In addition, they might be responsible for hiring employees and obtaining business financing.
The beauty of an LLC is that its members get to decide which structure makes the most sense: member-managed or manager-managed.
Hiring a management team isn’t always practical for an LLC, especially if it’s a small business. For this reason, many LLCs choose a member-managed structure. Each member is involved in day-to-day operations and helps make key decisions in these cases.
This eliminates the need for a board of directors. Unless otherwise specified, the state will consider an LLC member-managed by default.
In larger LLCs, non-members are often hired to act as managers. LLC members can act as managers alongside the non-member managers, or they can be completely uninvolved. In this structure, any LLC member who is not a manager is considered a passive investor and has no role in company operations.
A manager-managed LLC structure is beneficial when LLC members lack management skills. Bringing in outside managers can bridge the gap and put a company in a better position to succeed. A manager-managed structure is also a good choice if you have members who prefer passive ownership.
Choosing the right leadership structure for your LLC can play a major role in its success. This may involve the appointment of a CEO, or it might not.
Whichever route you choose, just be sure to outline the details of your membership and management structures in your operating agreement and reference them as needed.