It is possible to be the CEO of a Limited Liability Company (LLC); however, it is not a requirement. Below outlines how to form an LLC, how to outline the Operating Agreement, and how members get paid in an LLC.
The election of LLC members to positions of power and payment thereof is dependent on many factors including the number of members, and the arrangements that have been established regarding profit sharing and sweat equity.
I want to form an LLC. What do I do?
Establishing in LLC is fairly simple and can be accomplished in six simple steps, or you could hire an LLC Formation Service. The steps are as follows:
1. Select which state your company will be conducting business.
2. Choose a unique name that abides by state guidelines.
3. Find and choose a Registered Agent. This is a person or a business entity that has the authority to receive legal documents on behalf of your business.
4. Make it official. File your formation documents with the State.
5. Create an LLC Operating Agreement. This is especially important if you plan on becoming CEO yourself, or if another member will be put in that position.
6. Get an Employer Identification Number (EIN) by filing for free with the Internal Revenue Service (IRS).
The six parts of an Operating Agreement:
In order to establish either yourself or someone else as CEO of an LLC, a comprehensive Operating Agree is required. It’s a legal document which defines the ownership and member responsibilities of the business. The agreement establishes the financial and working structure between business owners. Although not legally required by some states, it is vitally important and can really help in the long run, especially when it comes to conflict management.
This involves the establishment of the business and outlines when the business was started, who the members are, and what the structure of ownership looks like. Depending on if there is more than one member, it needs to be clear if everyone has equal ownership or if certain members have varying shares.
2. Management and Voting
This part makes it clear how the business is managed and how the members vote. This is the important part that establishes whether a member will be a CEO or have other positions of power. There are two choices here: the business can be managed by its members (member-managed) or it may be managed by an appointed manager (manager-managed). The operating agreement indicates the level of authority that members have over the businesses’ affairs, and as such, whether someone is appointed as CEO or other positions of significant power.
3. Capital Contributions
This section states which members contributed financially to the establishment of the LLC and it also outlines how surplus funds will be raised by the members.
This part discusses how the businesses’ profits and losses are distributed between the members.
5. Membership Changes
This section covers how members may be added or removed. Furthermore, it discusses whether a member may transfer their ownership to someone else, and when they may do so. This is especially important if a member dies, a member’s loss all of their financial assets, or if two members divorce.
Finally, this part talks about the particulars of when the business has to be, or simply can, be dissolved.
How do members get paid in an LLC?
There are two primary ways in which you can pay yourself in both a single-member LLC (SMLLC) or multi-member LLC (MMLLC). One, is having your share of the profits passing through to your individual tax return. The second is by paying yourself a practical salary and share of the profits as an S corporation (S Corp).
For more information on how to Form an LLC, visit the TRUiC website. They explain the process of forming an LLC in depth and explain all of the necessary terms in language that is easily understandable.