What Rights Do I Have as a Member of a Limited Liability Company?

What Rights Do I Have as a Member of a Limited Liability Company?
limited liability company

There are guaranteed rights the law gives any member of an organization. A member of a limited liability company (LLC) is a person or entity holding a “membership interest.” In other words, they are the company owners in the same way shareholders are owners of a corporation.

However, members do not own the property of the LLC, and they may or may not manage the business and its affairs. In this article, our Connecticut business lawyers at Aeton Law Partners explain what a limited liability company is and the rights of its members. If you’re seeking to form an LLC, contact us to learn about the legal requirements and our other services.

What Is the Meaning of a Limited Liability Company? 

A limited liability company is a business structure that protects owners from personal responsibility for its debts and liabilities. LLCs are also hybrid entities that combine the characteristics of a corporation with those of a sole proprietorship or partnership. In Connecticut, a limited liability company is the least complex of all business structures.

Business owners operating an LLC enjoy several benefits like limited liability, legal protection for personal assets, and pass-through taxes. When creating an LLC, do the following;

  • Select a name for the company
  • Choose a statutory agent
  • File an Article of Organization
  • Create an operating agreement
  • Get an Employer ID Number (EIN)
  • Set up an organizational meeting

Doing the above yourself can seem strenuous and tasking, especially if you don’t know where to start. So contact our Connecticut business lawyers for help.

What Rights Do Members of an LLC Have? 

Under Connecticut law, there are two sources that determine the rights and duties of members. The first is the operating agreement and the second is governing rules. Below, we list some of the rights covered by these two.

Financial Rights 

When a person acquires an interest in a limited liability company, they receive certain financial rights. These rights include the right to share in allocations of the company’s profits and losses. In addition, members have the right to share in the LLC’s asset distributions during its existence and when it dissolves and liquidates.

Furthermore, members do not always have equal financial rights. The specific nature of this benefit, like whether it will be equally distributed or based on each person’s financial contribution or other criteria, is usually stated in the operating agreement. Thus, ensure your business attorney clearly states out what each person gets when drafting the operating agreement.

Right to Vote

Members of a limited liability company have the right to vote on decisions that affect the business. However, the scope of their voting rights depends on whether the LLC is managed by its members or managers. In a member-managed company, you may be allowed to vote on all matters affecting the business and other affairs.

In a manager-managed company, members have limited voting rights. Generally, they can elect and remove managers and vote on specific significant changes. The latter includes issues like amendment of the operating agreement or articles of organization, the admission of a new member, or a merger or dissolution.

Right to Members Inspections

Members have a right to inspect certain records that the law mandates limited liability companies to have. These records include the names, addresses, contributions, and shares of profits and losses of each member. It also covers the names and addresses of managers and certain tax returns. Note that LLCs can expand or reasonably restrict members’ rights to inspect books and records in their operating agreement.

Right to Commence a Derivative Suit

LLC members also have the right to file a derivative action. This is a lawsuit brought by a member on behalf of the company to protect it from the wrongs committed against it. The harmful activity could be from management or other members. Although a member files the suit, the action belongs to the LLC. This means that any damages awarded by the court go to the limited liability company.

Liability of Members

Members are not liable for the company’s debts or obligations. However, they are obligated to make the required capital contributions. The operating agreement usually sets out the penalties for failing to meet the preceding. In addition, a member who votes for an unlawful distribution is personally liable to the company for the portion of the distribution that exceeds the maximum amount that could have been lawfully distributed.

Contact Us Today!

At Aeton Law Partners, our Connecticut business attorneys have experience handling all types of disputes in state and federal courts involving limited liability companies. We also protect the rights of members. So contact us today to learn how we can assist you.

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