In this week's Freedom Friday blog and e-mail newsletter, I want to talk about something that frequently comes up with a lot of prospective clients who want to start a new business, especially when they are wanting to start that business with at least one other person. A few weeks ago in the Freedom Friday blog and e-mail newsletter, I talked about what a single-member LLC is. Today, I want to talk about what a multi-member LLC is. The owner(s) of an LLC are called “members.” If an LLC only has one owner, then it's a single-member LLC. However, if an LLC has more than one owner, even if it's a husband and wife, it's a multi-member LLC.
In today's Freedom Friday blog and e-mail newsletter, I want to talk about three (3) major differences between a multi-member LLC and a single-member LLC:
1. More Than One Member
The first difference between a multi-member LLC and a single-member LLC is obvious, the LLC has more than one “member” or owner. Earlier this week an attorney friend asked me about a possible referral. Someone was wanting to invest in a company with money and/or equipment, in exchange for a share of the profits (equity), without becoming an owner of an LLC. I'm not sure what the real issue was, but any time you invest in a company like that, and desire a share of equity, you're going to be considered an owner, i.e. a member of an LLC (or a shareholder of a corporation). My attorney friend asked about whether an LLC can have different types of members, and yes, that is possible, but that didn't solve this prospective client's issue. On the other hand, with a multi-member LLC, the different members, or owners of the LLC, can also have different percentages of investment, capital contribution, and involvement with the LLC. For example, an LLC member can have only a 5% membership interest, if they wish. Or, an LLC member can have a substantial membership interest, depending on how the LLC is structured as described in the operating agreement.
2. Management Possibilities
The second difference between a multi-member LLC and a single-member LLC is that there is the possibility for a manager to run the LLC for the members. An LLC can be member-managed or can be manager-managed. In a multi-member LLC, it is not uncommon for one of the members to also be the manager of the LLC, especially when there are some members who might have a small investment in the company, as little as 5% investment. Its also possible in a two or three member LLC that all the members serve as management for the LLC. However, the more members in an LLC, the greater the need is for there to be a manager of the LLC, and for the role of manager to be described in the operating agreement for the LLC.
3. Buy-Sell Provisions
The third difference between a multi-member LLC and a single-member LLC is that there is a need for buy-sell provisions in the operating agreement for LLC. Buy-sell provisions don't deal with the LLC buying another company or trying to sell the LLC. Rather, buy-sell provisions deal with the situation about when one of the LLC members desires to leave the company, gets divorced, files for bankruptcy, becomes disabled, incapacitated, or dies. The more members an LLC has, the more important it is to have a provision in the operating agreement on how these situations are handled. At the same time, its also important for the operating agreement to describe how disagreements are handled between the members of the LLC. All of these situations can be handled through buy-sell provisions worked out in advance with the members of the LLC, and with the help of a business attorney who is creating your operating agreement and forming your LLC.
If you are interested in starting a small busines anywhere in Oklahoma, or if you have a small business and you are looking to grow, please contact me at [email protected] for a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com