Series LLC Basics: Owners and Managers


Members

The owners of a Series LLC are called Members. Like a regular LLC, a Series LLC may be owned by individuals or other business entities. There is no geographical distinction on ownership; owners may be located anywhere in the world, as long as they comply with the entity’s tax classification.

In a standard LLC, you can choose to operate in one of two ways. You can operate as a Member-managed LLC, where every Member has an equal right to operate the business. All Members vote, can sign checks, make contracts, buy and sell assets in the LLC, and so on. You can also elect to operate as a two-tier structure, where Members take on the role of passive, non-participating owners (like limited partners) and the day-to-day operations are carried out by Managers.

Managers

The Managers are elected by the Members. They can be people, or they can be other business structures in turn (again, depending on the tax classification).

Managers are tasked with running the LLC. They control the business operations; writing the checks, hiring and firing employees, entering into business deals, signing contracts, and all of the other activities that make up the daily running of a business. This style of management is more like the classic corporation management. In fact, if the LLC was a corporation the Managers would have titles you’re familiar with, like President, Secretary-Treasurer, Vice-President, General Manager, and so on.

You can be a Member of an LLC and a Manager. In fact, in most small, closely-held LLCs this is a typical set-up, where the Managers are also the Members. But there are times when it’s very convenient to have the two-tiered structure. For example, let’s say you want to give some of the ownership in an LLC to your children, but you don’t want them interfering in the daily business operations. If you have a single-level, Member-managed operation, you can’t do this. As full Members, your kids have the right to vote, and receive their share of the profits. But once they come of age, they also have the right to sign contracts, checks, bind the business, and make decisions somewhat independently of you and the other Members. While your kids probably won’t get the business into trouble, it’s an unnecessary risk you don’t have to take.

Another example would be a case where you’ve got a silent partner, who wants to participate in the profit, and has invested money or assets into the LLC, but doesn’t want to be bothered with the rest of it. By creating a Manager-managed LLC, with you as the Manager (and a Member) and your silent partner as just a Member, you have accomplished just that. (There’s also a really neat tax advantage that we’ll share a little later on).

In a Series LLC, you always operate in the two-tiered, Manager-managed structure. The complex, layered nature of the structure means you’ve got to have a centralized point of control, and there’s no better way to do that in an LLC. This follows through to the Cells, too.

Each subsidiary is also created as a Manager-managed entity.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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