Info about the Limited Liability Company & Corporation
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What Rights Does an LLC Member in a Limited Liability Company Have?

The word “Member” is used to describe a person or entity that has an ownership interest in a limited liability company.  Generally, a Member will own a certain number of Membership Units (similar to shares in a corporation) but an LLC can be set up where a Member owns a Membership Interest which is expressed as a percentage (e.g., 75%) of the limited liability company.

This question about rights and obligations of an LLC Member is a difficult one to answer because the LLC laws actually allow an LLC to define for that particular LLC what rights and obligations a Member has. So, the answer is that the rights and obligations are defined by the LLC governance documents- usually the LLC Operating Agreement.

This flexibility and ability to determine the rights and obligations is one of the great advantages of a limited liability company- it allows different businesses to cater its ownership, financial and governance structure in a way that best suits that particular LLC.

However, a great majority of limited liability companies do not require such tailoring and have a general and straightforward ownership and governance structure.

In many limited liability company situations, an LLC Member has two types of RIGHTS: (i) economic rights and (ii) management/voting rights.

Economic Rights are the right to a certain percentage of the profits of the limited liability company.  Typically, this right is equal to what percentage in the LLC the Member owns.  So, if a Member owns 500 Membership Units and there are a total of 1000 Membership Units issued to all Members, that Member would get 50% of the profits.

Management and Voting Rights are determined with a similar formula.  When Members vote on LLC operational or transactional issues, a Member has a voting percentage which is typically based on the relative ownership he/she has in the total LLC.  Generally, in order for an LLC action to be approved, the action must be approved by Members owning a certain percentage.  The most common percentage is majority in interest which means at least 51% but for some LLCs, the percentage could be increased to whatever the LLC Operating Agreement states.

Again, the above examples of economic and management/voting rights are just typical examples but the LLC laws allow for these to be tailored for any LLC.  So, if you are starting an LLC, you need to think through these matters and determine what makes sense for your LLC business.  If you need assistance, it is always recommended you seek the advice of a competent LLC attorney who can help.

ONE ADDITIONAL IMPORTANT RIGHTS OF AN LLC MEMBER.

Please read on as this is an important point: When a Member is given a membership interest or membership units in an LLC, the rights he/she has is a personal property right.  It is just like acquiring shares in a corporation or title to a car.  The LLC or other Members cannot just take those membership interest/membership units back without the consent of the Member. THIS IS IMPORTANT.

Before you issue membership units in your LLC to another person, make sure you understand this.  It does not matter how that person acts later, you cannot take those membership units back unless you provide for special provisions or a special arrangement to buy them back via a legal written document.  In summary, additional legal and business planning is required if you want to be able to unilaterally buy back membership units/interests that have been issued to a Member.

This is a very important matter because it comes up often when Members have disputes or another Member ends up not helping out if there was an expectation of him/her helping out in the LLC business.  All obligations need to be in writing.  Please consult with your LLC attorney

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