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.