LLC Terminology

Definitions

• Member

  All LLCs must have at least one member. LLC members are the owners of the LLC like shareholders are the owners of a corporation or the partners are owners of a partnership. Like shareholders, a member's liability to repay the LLC's obligations is limited to his or her capital contribution to the LLC. Members may be natural persons, corporations, partnerships, or other LLCs.
  
  

• Membership Interest

  A member's ownership interest, a percentage of the whole in the LLC, is called a membership interest. Unless otherwise provided in the operating agreement, a member's right to control or manage the LLC is proportionate to the membership interest.
  
  

• Manager

  LLCs have managers to run the day-to-day operations of the LLC. The managers are elected or appointed by members and may also be removed by members. A member may also be a manager, often called the managing member (similar to the managing partner of a partnership). Managers are like the officers and employees of a corporation. 
  
  LLCs may be either member-managed or manager-managed. A member-managed LLC may be governed by a single member (in which case it approximates a partnership) or multiple members. Choosing manager management creates a two-tiered management structure that approximates corporate governance with the managers typically holding powers similar to corporate officers and directors, and members being passive and not involved daily. The LLC's operating agreement (the LLC version of a partnership agreement or a corporation's bylaws) determines how the LLC is managed. Corporations, S-corporations, Limited Liability Partnerships, Limited Partnerships, Limited Liability Limited Partnerships, and LLCs lie along a spectrum of flexibility with LLCs being the most flexible, and thus preferable, for many businesses.
  
  

• Articles of Organization

  LLCs file evidence of their existence with the secretary of state (or some governmental office) of the state where they choose to be organized. The Articles of Organization are this document and are the LLC version of a corporation's articles of incorporation, sometimes called a Charter. The information that must be included in the Articles of Organization varies by state. All LLCs must disclose their company name (which must conform to rules set forth by the state of organization), appoint a statutory agent and usually disclose a valid business purpose. The fees associated with filing the Articles of Organization also vary by state.
  
  

• Operating Agreement

  The Operating Agreement of an LLC is the document most important to its success because it determines, defines, and apportions the rights of the members, and sets the powers of the manager. It is like the bylaws of a corporation. LLC statutes offer much flexibility.