An LLC (limited liability company) can offer legal protections for your business. And unlike a corporation, when a multi-member LLC is set up and operated properly, it can also provide legal protections for the owners and the LLC itself for non-business matters as well (with the help of a good lawyer right from the beginning).
The LLC might choose to be taxed as a Sole-Proprietorship, Partnership, S-Corporations or C-Corporation. The owner(s) the the LLC are called Members, and they may choose to have an appropriate title such as: Manager, Partner, Principal, President, CEO, Board of Directors and so forth. The IRS sometimes rejects the use of the title "Member" or "Manager," preferring an older, more established title, such as "Partner."
LLC members are the owners the company. Members typically provide the funding and resources to get an LLC established. That may be cash, investments, promissory notes, subscriptions receivable, real estate, motor vehicles, equipment, patents, trade secrets, goodwill, or professional services in exchange for their interest in the LLC. Members can choose (and possibly file a tax election) to be taxed on the profit or losses of the LLC, which are taxed on their own income tax returns. In certain circumstances, an IRS Section 83(b) tax election may also be made in advance by a member (with copy given to the LLC), with regards to options to reward service providers with future performance-based, earned-in ownership.
The LLC members choose how the LLC is to be managed. Either by all of the members, or by one or more managers. One or more of the managers may be a member but it is not a legal requirement for any manager to be a member. One or more of the managers might also be a member. But it is not a legal requirement for a manager to be a member.
Responsibilities of Members and Managers
Whether the LLC is member-managed or manager-managed, the best practice often is to write up an operating agreement (with the help of a corporate lawyer) that spells out exactly how the LLC will be operated. If there is no written operating agreement most states have a default operating agreement already written into their LLC statutes. The LLC operating agreement will define the duties of the members and if manager-managed, the duties of those managers and the terms of their engagement.
Pages in the LLCs topic group