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A limited liability company (LLC) is a business structure which combines many of the benefits of a sole proprietorship or partnership with the limited liability of a corporation. The owners of an LLC are called “members”. Depending on your state, the members of an LLC may be one or more individuals, corporations or other limited liability companies. Some states require that all members be individuals and not corporate entities. The owners of an LLC report their business profit on their personal tax returns, Similar to S corporations, the LLC business structure protects the owners from liability for the company’s debts.
The owners of an LLC are called “members.” They are similar to shareholders in a corporation. All LLCs must have at least one member. Some states require that all of the members of an LLC be individuals (“natural persons”). Other states will allow you to name corporations and other LLCs as members, in addition to individuals.
When creating an LLC, you’ll be able to select between two different management options:
- Member Managed – The most common management option for an LLC is “member managed.” Under this option, all of the members (owners) of the company are responsible for the business decisions and day to day operations of the LLC.
- Manager Managed – You may also elect to create your LLC with managers in addition to members. Under this scenario, the members of the company designate one or more managers who are responsible for the day to day operations of the business. Managers may also be members of the LLC. This option is appropriate for companies with passive investors that serve as members, but do not participate in any of the business operations.
After formation, most multiple member LLCs write operating agreements that spell out the roles and responsibilities of the members, outline how decisions will be made, and provide rules for business operations. The operating agreement for an LLC is similar to the bylaws of a corporation. Most states do not require companies to file their operating agreements with the Secretary of State.