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LLC Members

A member of an LLC can be compared to a shareholder or stockholder in a corporation, but with certain distinct differences. Chief among these differences is that a member can be granted voting rights in the LLC based on the percentage of capital he has invested in the LLC. This arrangement must be outlined in the Operating Agreement (similar to the “bylaws” in a corporation), along with any other rules or agreements that affect the membership in the LLC. This operating agreement must be in place before during, or shortly after the filing of the Articles of Organization.

Many states allow for the creation of single-member LLCs, while other states require two or more members, so this must be taken into consideration when forming an LLC. It is also very important to note that the IRS may apply different tax liabilities to an LLC with only one member (taxed as a corporation or disregarded entity for tax purposes) than it does to an LLC with more than one member (taxed as a partnership by default).

Typically, member shares may be sold only upon the approval of members holding a majority in interest, unless otherwise stipulated by the articles of organization or the operating agreement.

Another important consideration is that the members are directly liable for all of the LLC’s income, in proportionate amounts, regardless of whether a distribution of income was made. This is both a benefit of the pass-through taxation treatment, and an issue if there is disagreement among the members.

LLC Members

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