A limited liability company (LLC) is a business entity that is very popular in the United States.
The ownership structure of an LLC will depend on many factors.
One or more individuals, corporations, partnership firms, and other LLCs can own an LLC.
Who owns an LLC depends on many factors, including the company’s structure and who has invested in it.
Read on if you are looking for more information about how ownership structures work concerning LLCs.
The Structure of Limited Liability Companies
A limited liability company is a business structure that provides the limited liability features of corporations and the tax efficiencies (e.g., pass-through taxation) of a sole proprietorship and partnership.
The owners ("members") are "protected" from being held personally liable for company debts, including court judgments against the LLC itself; their personal assets can be protected by having creditors pursue collecting on those debts from the LLC's assets.
The liability protection of a limited liability company structure is similar to that for shareholders in an S corporation or partners in a partnership—the members are not personally responsible for debts beyond their investment.
However, they still have "ownership" and participate in business management. Like those other tax structures, forming one does not create a taxable event unless your choose C corp taxation for your LLC.
Who Are LLC Owners?
LLCs can be owned by individuals (single-member LLC or multiple-member LLC), corporations, or other LLCs.
The type of ownership will largely dictate the tax treatment of the LLC, liabilities, and other issues.
Multi-member LLCs are owned by two or more people (and sometimes entities) who have an equal right to participate in management decisions through voting rights or similar means.
LLC Members With an Economic Interest
Most LLCs are single-membership LLCs, meaning they have only one owner.
That said, the owners of multi-member LLCs are called members with an economic interest in an LLC (also referred to as "LLC members" or "owners").
Members contribute money, property, and services (e.g., labor) to a business venture, expect profits from that venture, and share in distributions of LLC profits.
The number of members is unlimited in most states, but there has to be at least one member, an individual, or a legal entity.
The member has a "membership interest" in the LLC and the privileges provided by the statute and operating agreement of the LLC, whether contributing money or receiving an interest for services or an obligation.
LLC Members With a Non-economic Interest
Non-economic members are not entitled to share in the profits and losses of an LLC, i.e., there is no LLC ownership interest involved.
However, they still have personal liability for their contributions and any debts incurred by an LLC.
Non-economic members may be people outside of your company that help out with management but do not invest money into it.
For example, a managing LLC member can be a friend who acts as an adviser on a project without putting cash into it. They can also be related to you, such as family members or your spouse's parents.
An LLC member can be an assignee. An assignee has the right to receive distributions from an LLC.
Assignees are similar to members because they both have ownership interests in the business, except that LLC members elect a chief executive officer, vote on company policy, provide a signature when filing Articles of Organization while assignees cannot.
Assignees can receive the company's profits and losses or receive payments for professional services rendered to the business.
For example, if a company provides technical consulting services and employees are assigned an interest in the profits of that assignment, then they will earn money accordingly.
Many small business owners allow economic benefits to the assignees because the assignee can still get the economic portion of the original member's interest, allowing the assignee to profit from the interest while keeping them from controlling the company's assets or having any managerial function.
Assignees are not liable for the company's debts; they don't have to pay taxes on what is assigned since it belongs to another entity and doesn't create liability for them with their own personal assets.
Read More: Change Ownership Percentage of LLC
How Is Ownership of an LLC Determined?
The organization or operating agreement articles can determine the LLC ownership.
Ownership can be defined in percentages, equal shares among LLC members (e.g., 50/50 split), unequal share distribution (i.e., 30% to member A and 70% to member B), or capital contribution.
There are unlimited options for determining LLC ownership within an LLC governing document like an operating agreement.
Can There Be a President of an LLC?
Unlike corporations, LLCs are not obligated to have a president or board of directors.
However, it is common for an LLC to have one managing member who serves as the "president or organizer.
" This person's name will be on the articles of organization, and they are typically in charge of day-to-day operations.
Who Should Be Listed as an Organizer of an LLC?
An LLC organizer can be a natural person or a business entity. The organizer is not required to be listed as an owner of the LLC.
Still, it’s highly recommended that they establish personal liability for any debts incurred by the company and its members.
LLC managers, owners of an LLC, and any other parties involved in the company's decision-making process should be included as co-owners.
How Do You Add Members to an LLC?
To add new members to an LLC, you must consult the Operating Agreement that specifies how new LLC members are welcomed to the team.
Existing members often have a say in this process as it can change the LLC's financial records and ownership percentage.
If there is no such clause, state law will dictate the procedure necessary to complete this process.
Are a Husband and Wife Considered One Member of an LLC?
Married couples decide how they want to own their business. If you file taxes jointly, the LLC is likely owned by both spouses equally.
This is not always true for married couples who file separately or claim single status on their tax return.
When starting an LLC with your spouse, many factors need consideration when deciding which ownership structure to use.
An LLC with only one owner will be treated as a sole proprietorship for tax purposes.
Who Can Be a Member of a PLLC?
Licensed professionals can set up a professional LLC. That means that at least one LLC member must be a licensed professional, although some states require all PLLC members to have a professional license if they plan to provide services.
Can a PLLC Be a Single Member?
Yes. Professional LLCs can be single-member, but they also can have multiple members, some or all of whom have to possess a professional license before they can be owners of an LLC.
Can the Registered Agent and Organizer Be the Same Person?
If organizers of the LLC are simultaneously its members, they can act as its organizer.
An LLC can have one or more organizers, but each must be 18 years old and act as a business owner.
The registered agent cannot serve as the organizer if they are not a member themselves.
Keep in mind that maintaining the position of a registered agent and the owner of the LLC can be time-consuming and might jeopardize your privacy.
The registered agent must be a US resident or business entity authorized to transact intrastate business in the state of formation.
Still, you can always hire someone else as your registered agent.
What Is a Membership Certificate for an LLC?
A membership certificate for an LLC is a document that specifies profits, ownership percentage, and loss distribution of the LLC.
Having a membership certificate is highly recommended to LLCs that attract outside investors.
Forming an LLC without understanding how ownership works can be a costly mistake.
It's important to understand the different types of business structures available, what they entail, and which one is best for your situation before you sign anything or pay any money.
Seek legal advice if you want help determining the right type of company structure for your new venture, so you don't have to worry about making expensive mistakes in the future.