Known for its flexibility, the LLC structure provides a highly convenient structural advantage over other business models. One of the main reasons for the popularity of this structure is its virtually unlimited membership allowance. That said, it’s important to know how to legally maintain the entity’s framework. When an entity of this type is formed, it should have at least one member who can be the organizer, as well as the sole owner. However, you are free to take on more members throughout the company’s operation, though its classification and responsibilities will shift along with the growth of its membership group.
What is a Limited Liability Company?
Unlike general partnerships and sole proprietorships, the LLC is clearly distinct from the owners as individuals. As a business structure, it’s incredibly accommodating in terms of personal protection, allowing its owners to separate their personal and business assets. This helps shield personal securities in the event of litigation brought against the company itself, as well as optimize internal operations and bring potential tax benefits.
An LLC is created when the organizer submits the Articles (or Certificate) or Organization. After the relevant regulatory body approves the documents, the company can technically begin its operation, but in most cases, you will need additional steps to do your work legally.
Who Is the Member of the LLC and Who Can They Be?
An LLC member is an individual or entity that owns the entire company or specific percentage interest. Regardless of the size of their ownership share, a member is legally recognized as one of the company’s owners. The nuances of their involvement (managerial, voting, and other rights) are usually outlined in the operating agreement—an internal document typically drafted during the formation of the company.
In most states, LLC membership requirements are fairly lenient. Almost any individual or entity can become one, including:
- US citizens/residents;
- US immigrants/foreigners;
- Non-US citizens/residents;
- Other business structures (LLCs, corporations);
- IRAs, trusts, pension plans.
Still, there are certain restrictions for both individuals and entities. As a natural person, you can become a member if you are at least 18 years of age. Some states require you to have a physical state address as well. If a company chooses the S-corporation taxation system, its members must be natural persons. In this case, the following are not allowed to become members:
- Non-resident aliens;
- Insurance companies;
- Financial institutions;
- Domestic international sales entities.
Membership rights also vary depending on the size of the company. A single-member LLC is owned by only one person who is also a sole member of the company. They own 100% of the interest. In a multi-member LLC, the ownership interest is divided between several people.
How many members can an LLC have?
Most jurisdictions don’t impose strict limits on the number of members. The minimum number is, of course, one, in which case an entity is classified as a single-member LLC. Aside from that, a company can have an unlimited number of owners, though many entrepreneurs rightfully find it administratively inconvenient to bring on more than a few hundred participants.
For LLCs with a default taxation system, there are no legal restrictions for the number of members. If an entity elects an S-corp taxation system, the maximum number of members is 100.
Some states may somewhat restrict membership through annual fees. For instance, in Tennessee, each member must pay $50 annually, but the total sum must be above $300 and not exceed $3000.