What is an LLC?
Pass-through taxation and limited liability protection are two benefits of the business structure known as a limited liability company (LLC). The LLC, like corporations, is a separate legal entity from its owners. As a result, owners typically cannot be held personally liable for the obligations and debts of the business.

The terms of the operating agreement govern the admission of additional members. The majority of Acts stipulate that all existing members must consent to the admission of a new member unless otherwise specified. The circumstances under which a member may withdraw, resign, or be expelled from the LLC may also be outlined in the operating agreement.

Financial benefits Members of a limited liability company are entitled to a number of financial benefits as a result of acquiring an interest in the entity. The right to share in the distribution of the business's profits and losses is one of these financial rights. Additionally, members are entitled to a portion of the LLC's assets during its existence as well as its dissolution and liquidation.

The operating agreement typically specifies the precise nature of the financial rights, such as whether they will be distributed equally or based on capital contributions or other criteria. In the event that there is no provision in the operating agreement, the default provisions in the state laws specify how these financial rights will be divided.

Right to vote The members of an LLC can also vote. Whether the LLC is run by members or managers determines the scope of their voting rights. All issues pertaining to the LLC's operations and business can be voted on by members of member-managed businesses. However, members have limited voting rights in a company that is managed by a manager. Managers can generally be elected and removed, and they can vote on major changes like adding a new member, changing the operating agreement or articles of organization, merging or dissolving the company, and so on.

A person or group with a membership interest in a limited liability company is referred to as a member. An LLC's members are its owners, just like a corporation's shareholders are its owners. The LLC's assets are not owned by its members. The company and its affairs may or may not be managed by them. At the time of creation, the initial members are admitted. The terms of the operating agreement govern the admission of additional members. The majority of Acts stipulate that all existing members must consent to the admission of a new member unless otherwise specified. The circumstances under which a member may withdraw, resign, or be expelled from the LLC may also be outlined in the operating agreement.

Financial benefits Members of a limited liability company are entitled to a number of financial benefits as a result of acquiring an interest in the entity. The right to share in the distribution of the business's profits and losses is one of these financial rights. Additionally, members are entitled to a portion of the LLC's assets during its existence as well as its dissolution and liquidation.

The operating agreement typically specifies the precise nature of the financial rights, such as whether they will be distributed equally or based on capital contributions or other criteria. In the event that there is no provision in the operating agreement, the default provisions in the state laws specify how these financial rights will be divided.

Right to vote The members of an LLC can also vote. Whether the LLC is run by members or managers determines the scope of their voting rights. All issues pertaining to the LLC's operations and business can be voted on by members of member-managed businesses. However, members have limited voting rights in a company that is managed by a manager. Managers can generally be elected and removed, and they can vote on major changes like adding a new member, changing the operating agreement or articles of organization, merging or dissolving the company, and so on.

Member inspections Some states grant members the right to inspect an LLC's records and stipulate that an LLC must keep certain records. The names, addresses, contributions, and shares of profits and losses of each member, as well as the managers' names and addresses, are all included in these records. In their operating agreements, LLCs can expand or reasonably limit the members' right to inspect books and records.

Rights of dissidents The right of dissidents, also referred to as the right to an appraisal, is the ability to return a member's interest to the LLC for the fair value of the interest in the event that the LLC engages in a transaction that would alter the member's investment's character without the member's consent. A merger, the sale of all the company's assets, or the transformation into a different kind of entity are all examples of this kind of deal. Dissenters' rights are specifically granted by some LLC Acts, while others do not. The LLC may grant this right in the operating agreement, as specified in some Acts.

Members may also be eligible to bring a derivative action. This is a lawsuit filed on behalf of the LLC by a member to protect it from wrongdoing by management or others. The LLC owns the action, despite the member's filing of the suit. Consequently, the LLC will receive the damages awarded by the court in the event that the member prevails in the lawsuit. To continue a derivative suit, a member must satisfy a number of requirements. These include insisting that the LLC bring the suit itself and being a member at the time of the alleged wrongdoing.

Members have the right to file a derivative suit under some statutes. A member may or may not have a common law right when the statute is silent. That is a matter for the state courts to decide.

Members' liability An LLC's debts and obligations are not the responsibility of its members. However, members are obligated to contribute the necessary capital. The penalties for failing to do so may be outlined in the operating agreement. Any member who casts a vote in favor of a distribution that violates the law is personally liable to the LLC for any portion of the distribution that is greater than the maximum amount that could have been distributed in a legal manner.

Any fiduciary duties owed to the company and its members may be breached by a member of a member-managed LLC or a member who is also a manager. If a member withdraws without following the procedures outlined in the agreement, for example, they could be held liable for breaking a provision of the operating agreement.

Member inspections Some states grant members the right to inspect an LLC's records and stipulate that an LLC must keep certain records. The names, addresses, contributions, and shares of profits and losses of each member, as well as the managers' names and addresses, are all included in these records. In their operating agreements, LLCs can expand or reasonably limit the members' right to inspect books and records.

Rights of dissidents The right of dissidents, also referred to as the right to an appraisal, is the ability to return a member's interest to the LLC for the fair value of the interest in the event that the LLC engages in a transaction that would alter the member's investment's character without the member's consent. A merger, the sale of all the company's assets, or the transformation into a different kind of entity are all examples of this kind of deal. Dissenters' rights are specifically granted by some LLC Acts, while others do not. The LLC may grant this right in the operating agreement, as specified in some Acts.

Members may also be eligible to bring a derivative action. This is a lawsuit filed on behalf of the LLC by a member to protect it from wrongdoing by management or others. The LLC owns the action, despite the member's filing of the suit. Consequently, the LLC will receive the damages awarded by the court in the event that the member prevails in the lawsuit. To continue a derivative suit, a member must satisfy a number of requirements. These include insisting that the LLC bring the suit itself and being a member at the time of the alleged wrongdoing.

Members have the right to file a derivative suit under some statutes. A member may or may not have a common law right when the statute is silent. That is a matter for the state courts to decide.

Members' liability An LLC's debts and obligations are not the responsibility of its members. However, members are obligated to contribute the necessary capital. The penalties for failing to do so may be outlined in the operating agreement. Any member who casts a vote in favor of a distribution that violates the law is personally liable to the LLC for any portion of the distribution that is greater than the maximum amount that could have been distributed in a legal manner.

Any fiduciary duties owed to the company and its members may be breached by a member of a member-managed LLC or a member who is also a manager. If a member withdraws without following the procedures outlined in the agreement, for example, they could be held liable for breaking a provision of the operating agreement.