The Structure of the Limited Liability Company
You structure your own LLC. That’s the beauty of the entity itself; no need for three tiers of power, like the General Corporation. No need to follow what others have done, or follow their rules. You dream up the ideal structure for your situation, draft it up and that’s it. Your LLC Company Agreement can be uniquely yours so that it fits the deal like a glove.
The simplest form of LLC can be one of two categories, a “Member Managed” LLC or a “Manager Managed” LLC. Each is perfectly self-explanatory. The difference is found not in the filing documents, but in the Company Agreement. Changing from one type to the other is an internal matter requiring the unanimous agreement of all members, and an amendment to the Company Agreement. This is a very easy process, so long as all members agree.
In Delaware, your right to structure your LLC anyway you want is called “Freedom of Contract”. You can draft the “contract” that all members agree to follow.
What does this mean to you? Here are some example client scenarios where freedom of contract was importatnt:
- Holding a vacation home or rental property in an entity that will shelter it (and you) from legal attacks yet provide for its long term ownership
- Restructuring a family business to divide up shares, giving the minority owners some specific ownership rights, yet giving the reins of power to the family members who actually run the business
- Forging a strategic alliance between your company and another with stated responsibilities and predetermined profit splits
These and so many more examples are out there. After all, business ventures are not all alike, so why shouldn’t they be structured and governed according to their own unique characteristics?
Only an LLC can be used like this, and still give you entity status. All these structures can be devised by a good corporate attorney, with your input as to what specific details you want to include. You can also start with a boilerplate agreement and draft it up yourself. I’d recommend that you have it reviewed afterwards by an attorney familiar with the intricacies of LLC law.
The aforementioned structures are simple compared to other "exotic" structures like the Series LLC and the LLC with multiple classes of members. If you don’t require a custom structure, simply select the member managed or the manager managed LLC company agreement.
If you have question about structuring your LLC, please call us. We can’t advise you on what to do, but we can help educate you on things to consider when structuring your own LLC.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
More By Rick Bell
There are 3 comments left for Business Structure: LLC
sim Wooten said: Tuesday, March 29, 2022I already have a LLC and EIN created 3 yrs ago. I want ot keep both the name and EIN. There were three original members who owned a boat together. We want to change the membership as we have sold the original boat and bought a new boat with 4 members, 2 of which are new. One of the original members dropped out. How do we do this?
HBS Staff replied: Friday, April 1, 2022Hello Sim,
The Ownership of an LLC is done through an internal document call the LLC Operating Agreement and is not required to be disclosed to the State of Delaware nor to Harvard Business Services. We will be happy to reach out with more additional information via email.
Melanie said: Thursday, November 22, 2018I originally was going to set up the LLC in Arizona and have already received an EIN number with the Arizona address do I have to change the EIN number now that I have the LLC in Delaware?
HBS Staff replied: Monday, November 26, 2018Melanie, often a new EIN is required if you are filing a new company with the new state, but we typically check with the IRS directly for each individual case.
Tanmay Kelkar said: Friday, November 24, 2017Hi. I want to set up a Delaware LLC as a subsidiary of a Canadian Provincial Corporation. The LLC must be able to obtain an H1B transfer of employees who are already on an H1B visa with another employer in the USA. Is that possible? Thanks!
HBS Staff replied: Monday, November 27, 2017Traditionally, clients consult with an immigration attorney for something this specific, just to be on the safe side. We can certainly help you set up the LLC but it's best if you check with an immigration lawyer regarding the H1V visa issues.