What Is an LLC Member? (Everything You Should Know)
An LLC member is an owner of a limited liability company. The member’s economic rights and ability to take part in management depend on the state law and the LLC’s governing documents [1] [2].
Quick Summary
Being a member does not automatically make someone an employee, give them day-to-day authority, or protect them from liability for their own conduct.
Read the operating agreement before relying on a title or assuming what a member can do.
What Is an LLC Member?
A member is an owner, but ownership does not always mean equal voting power or an equal share of profits. The operating agreement and applicable state law set the rules for contributions, allocations, distributions, voting, and management.
If you are deciding how ownership will be divided, start with the agreement and this guide to how ownership is divided among LLC members.
What Is the Difference Between a Manager and a Member?
An LLC can be member-managed or manager-managed, depending on the state statute and the company’s governing documents. In a member-managed LLC, members generally take part in management under the applicable default rules.
In a manager-managed LLC, the agreement can give day-to-day authority to one or more managers; a member may be an owner without managing operations [3].
How to Add LLC Members?
Before adding an owner, check the approval and amendment rules in the operating agreement. Record the new member’s contribution, ownership percentage, voting rights, profit allocation, and effective date in the company’s records.
The IRS generally treats a domestic LLC with two or more members as a partnership unless it elects corporate tax treatment; adding a member can therefore change the federal tax classification [4]. See how to add LLC members.
Related Articles:
- What Is an Executor of an LLC
- Who Can Be a Member of an LLC
- How to Remove a Member From Your LLC
- How Do You Fill Out an LLC Membership Certificate
What Is the Maximum Number of Members in an LLC?
There is no general federal maximum number of LLC members. State law, the operating agreement, securities rules, licensing rules, and practical administration can still limit who may own a particular company.
The IRS describes LLC ownership rules as matters that can vary by state [5].
Liability of Members
An LLC’s liability shield generally means a member is not personally responsible for company debts solely because they are a member. It is not a promise that personal assets are never at risk.
A member can remain responsible for a personal guarantee, their own wrongful act, or another obligation imposed by law. For example, California’s statute distinguishes liability solely by reason of membership from liability for a person’s own conduct [6].
Keep company and personal finances separate and follow required formalities.
How LLC Members Are Taxed
An LLC member does not automatically receive a W-2 salary or a fixed share of cash. How money is distributed depends on the operating agreement, available funds, and tax rules.
For federal income-tax purposes, a single-member LLC is generally disregarded and a multi-member domestic LLC is generally treated as a partnership unless it elects otherwise [7].
Members of an LLC taxed as a partnership may owe self-employment tax on partnership earnings; the result is not a flat 15.3% rule for every member or every dollar [8].
FAQs
How Many Members Are Considered Necessary for an LLC?
An LLC can generally have one or more members. The IRS says most states permit single-member LLCs and does not set a general federal maximum, but state law and restrictions that apply to a particular profession or industry can matter [9].
Can an LLC Member Transfer Their Membership Interest to Someone Else?
A member may be able to assign some or all of an economic interest, but the recipient may not automatically receive voting or management rights or become a member. The approval process depends on state law and the operating agreement. Texas, for example, distinguishes assignment of an interest from admission as a member [10].
Can an LLC Member Be Removed or Expelled From the LLC?
Do not assume an LLC can expel a member by majority vote. Review the operating agreement and the state’s statute for permitted withdrawal, buyout, and dissociation procedures. Texas law, for example, restricts withdrawal or expulsion except as allowed by the governing law and agreement [11].
References:
- https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17704.07.
- https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17704.07.
- https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17703.04.
- https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- https://www.irs.gov/faqs/small-business-self-employed-other-business/entities
- https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm
- https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm
