When it comes to business leadership, titles are important. They carry real weight and meaning beyond the specific roles and responsibilities.
The owners of an LLC are known as members, and in some companies, members may also be managers. Therefore, the management structure you choose will likely determine the titles and responsibilities of your members, all of which should be clearly outlined in your operating agreement.
Read on to learn about LLC owners and business structures and the value of a robust operating agreement.
What Is an LLC Member?
LLC owners are called members. They have ownership interest in the business. They may have contributed to the launch of the LLC or purchased equipment for the company.
While not a requirement in most states, an operating agreement is a crucial document for LLCs. It outlines the rights of each member, including voting rights and profit allocations.
Member Minimum and Maximum
To register as an LLC, the entity must have at least one member. LLCs with one member are also 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 to being a member of an LLC. 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 to be member-managed, with each member involved in day-to-day operations and helping make critical decisions.
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.
LLC owners are also known as members, and these terms are often used interchangeably. Depending on your chosen business structure, you may also appoint managers. Just remember that determining the roles of your LLC’s owners or members is a significant step.
It’s wise to take your time, assign responsibilities that align with your business structure and goals, and ensure you detail all of these decisions in your operating agreement.