Our firm frequently consults with start-up and mature companies regarding the nature of the terms that govern their business relationship. In the parlance of the LLC, an owner of an LLC is referred to as a “member”.
1. Choice of Business Entity. Most new small businesses no longer use corporations to conduct business. This is because LLCs are much more flexible in allocating income among individual members. The LLC also has an advantage over a partnership because no members are personally liable for the acts or omissions of another member. Typically, a tax advisor should be consulted before the company decides to be a partnership, an LLC, a corporation or a subchapter S corporation, or an LLC electing subchapter S corporation status.
2. Ownership; Sharing in Profits. Typically an LLC is owned equally by all of the members of the LLC, but this does not have to be the case. For example, a newer member may be given a smaller ownership percentage. Also, not all individuals working with the LLC will necessarily have an ownership interest in the LLC. For example, one or more people could merely be an employee or an independent contractor, perhaps, for some period of time prior to receiving an ownership interest. For the most part, the members usually share in profits of the LLC in proportion to each member’s ownership interest in the LLC. However, this does not need to be the case. Unlike in a corporation where each shareholder basically received its proportionate share of all income, regardless of the source of such income, members of an LLC may receive different shares of income from different sources.
3. Scope of the LLC. Typically all of the businesses activities are run through the LLC. The LLC would become the contracting party for all agreements entered into by the LLC, collect all monies payable, and pay all of the bills. To the extent the company has already entered into agreements or owns intellectual property such as patents, trademarks etc., those agreements and/or intellectual property should be assigned to the LLC if allowable by the agreement and governing law.
4. Management. LLC decisions may be made by a majority vote, a unanimous vote or by any variation thereof. For example, in order for there to be a “majority”, one or more specific individuals may have to be voting in the “majority”. In other words, all of the members may not have equal voting rights. LLC decisions may also be made by one or more members selected to be the “managing member(s)”. Typically, some decisions are subject to a majority vote and some decisions require a unanimous vote. In order to avoid most deadlocks, a company would typically want to limit the number of issues that are subject to a unanimous vote. The following are typical examples of those issues that require a unanimous vote:
Expelling a member from the LLC (the member expelled would not vote on this);
Admitting a new member;
Amending the operating agreement, which governs the relationships of the members.
The following are other types of decisions that typically would be made by the managing members, or, if none, a majority vote, but could be made subject to unanimous vote:
General business decisions, such as how to invest LLC monies, how much to draw as salaries, the designation of any managing members, the LLC attorney, auditors, manager and when and how to expand, purchase major assets, take on significant debt, expand the business etc.
5. Terminated Members. As used herein the term “terminated” member refers to a member who leaves the LLC, whether due to his or her expulsion, decision to leave, or death or disability. [THE TREATMENT OF A TERMINATED MEMBER WILL BE THE SUBJECT OF A FUTURE ARTICLE].
At Welts, White & Fontaine, P.C. our lawyers have experience representing owners of closely held businesses in a wide array of industries including professional practices, technology companies, manufacturers, car dealerships, franchisees, restaurants and a wide array of small businesses. We can help guide you through a successful navigation of New Hampshire’s business laws. Please contact Attorneys John Polgrean or Thomas “Jay” Leonard if you have questions or concerns about your business planning endeavors. (603) 883-0797. firstname.lastname@example.org or fill out our Contact Us form.
Author: John Polgrean
This blog is intended for informational use only. The information contained herein should not be construed as offering legal advice or a legal opinion.