Due to their flexibility in taxation and management, Limited Liability Companies (LLCs) are a common corporate structure in the US. LLCs may have one or more members, who may be either other LLCs, corporations, or people. The capacity to have passive members who make investments in the company without actively participating in management is one of the benefits of an LLC. An LLC cannot, however, have all of its members be passive.
An LLC’s passive members are people who have contributed money to the company but are not actively involved in running it. Non-managing members are another name for passive members. They have limited liability and are not liable for the debts and liabilities of the LLC on their own behalf. The LLC’s active members are in charge of managing operations and taking decisions on the LLC’s behalf.
Although LLCs are allowed to have passive members, each one must also have a managing member who is in charge of making decisions and administering the business’s day-to-day activities. An individual or another LLC appointed to administer the LLC may serve as the managing member.
Additionally, LLCs are able to belong to other LLCs. When one LLC makes an investment in another LLC, that LLC joins the second LLC. If the investing LLC does not take part in the second LLC’s management, it may join as a passive member. The second LLC will have one additional member, and the investing LLC will get a portion of the second LLC’s gains and losses.
In LLCs, the terms “owner” and “member” are sometimes used interchangeably. But there is a distinction between the two. Anyone who owns a portion of an LLC is referred to as an LLC owner, regardless of whether they are in charge of running the business. An owner who actively participates in the management of the company is referred to as a member. As a result, an owner is not always a member, but a member is always an owner.
Despite the fact that LLCs are permitted to have passive members, each LLC must have at least one management member. ‘Owner’ and’member’ have various definitions in LLCs, and LLCs can also be members of other LLCs. A common business structure is an LLC because of its adaptability and limited liability protection. To ensure the success of the company and compliance with state legislation, it is crucial to comprehend the duties and obligations of members and managing members in an LLC.