One of the things I find fascinating about limited liability companies – called LLC – is that the traditional concept of “ownership” of a business is split into three separate parts. Traditionally, especially in smaller or closely held corporations, “ownership” comes with three rights: the right to direct the overall affairs of the business (shareholders); the right to run the business (corporate officers); and of course, the right to receive the profits from the business (dividends). For the most part though, in a traditional corporation the person who “owns” the right to receive the money – the shareholder – is considered the “owner” of the business, and the “owner” of the right to control the affairs. They’re combined.
Limited liability companies, on the other hand, treat these three rights separately. The rights are split into management; membership (right to vote on major decisions); and economic interest owner (right to receive profits). See the chart I’ve prepared. It is entirely plausible that an LLC can have an appointed manager who runs the company; members who vote on overall company affairs; and people who are completely separate from those two who get all the profits but who have no say in how the company is run. As the chart also shows, these rights can be combined in creative ways to meet particular client goals.
Here’s an example: I have a client with a successful window installation business who wants to open a dance studio / wine bar, and give some or all of the profits to his teenaged daughter to help her build savings. He doesn’t want the daughter to have any say in the management of the business. He also doesn’t want to have to manage the day-to-day affairs of the business either.
The split among the three interests of the LLC can best be shown in the bottom two charts: He can be the member who votes on major company affairs; he can appoint a manager to run the day-to-day business; and the profits can be spit off and paid to his daughter or split between himself and his daughter. The manager doesn’t get a vote on major company decisions; the member can’t manage the day-to-day affairs; and the daughter has no say in either of the other rights.
If you are setting up a business and need creative solutions to your particular situation, call me in Asheville or Chicago at (312) 671-6453.