According to the Small Business Administration, small-business creation and ownership are on the rise. Many individuals starting businesses are using limited liability companies as their vehicle. LLCs provide many of the liability shielding and tax benefits of corporations but typically require less administrative oversight. This generally translates into more flexibility and lower costs.
Owners Are Members
An LLC is a business structure created and governed by state laws. An LLC's owners are referred to as members. Many states allow single-member LLCs. Other states require at least two members. Because most states have few, if any, restrictions on ownership, members can be individuals, corporations or other LLCs. For example, if you form an LLC with three other entities or individuals as owners, all four of you would be considered members.
Members can all have the same equitable membership interests, but this is not required. One member can have a higher level of ownership. If you form a multi-member LLC, you should complete an operating agreement that designates who owns what stake, or interests, and what the profit or loss distribution will be among members. If you create a single-member LLC, you own 100 percent of the membership interests.
A managing member has the authority to act as the agent on behalf of the LLC. This individual can enter into agreements and generally conduct the daily operations of the business. The operating agreement designates the roles, responsibilities and duties of the managing member. "Managing member," a legal designation, is often used as the operational title of the person in this role.
Except where compliance with legal statutes mandate, you can use other terms besides "member" or "managing member" to identify LLC owners. In day-to-day operations, many business owners use titles that represent ownership, such as “principal,” “founder,” “co-founder” or “owner.” If you are a member who does not play an active role in the business, you could choose “investor” as your title. If you are the managing member, you could use terms more people are familiar with, such as chief executive officer or president.
Ensure Title Has Authority
Alternatively, you can use a title that describes what you do for the company, such as “sales director.” To ensure that your title accurately reflects your role in the company, include a description of roles and titles in the operating agreement. This ensures that you and other applicable members have the full legal authority to sign any document, including legal documents, using your selected titles.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.