LLC owners are referred to as “members.” The operating agreement typically lays out the responsibilities of the members. While other corporate structures may limit the number of shareholders or place other restrictions on the owners, LLCs have no such limitations. LLC owners may be individuals, but need not be residents of the United States. Members may also be other business entities, such as partnerships, other LLCs, or corporations.
While other corporate structures may be required to adhere to certain corporate formalities, such as holding an annual meeting or recording meeting minutes, many of these formalities are optional for LLCs. However, many states require LLCs to file annual reports in order to maintain their good standing; this makes it important for LLC owners to regularly review their state’s requirements to ensure that they are in compliance.
While a standard C corporation may be subject to double taxation, an LLC is taxed like a partnership if there are multiple members and as a sole proprietorship if there is only one member. The owners of an LLC may choose to file a special election with the IRS to be taxed as a corporation.
Another important consideration of an LLC is deciding who manages the day-to-day business operations. In either the articles of organization or the operating agreement, an LLC may designate the manager of the business. LLCs may be “member-managed” or they may be “manager-managed.” In most cases, manager-managed LLCs are used when the members prefer to be passive investors in the business.