Who Can Be a Member of an LLC?

One of the underlying principles behind the limited liability company is that it was created by lawmakers to be the easiest and most flexible legal entity to be used for a variety of purposes.

While running a business is the most common use, it is also used for holding real estate or other assets, family owned property, self directed IRAs and other investment holdings, and estate planning.
Because of its many uses, this type of vehicle needs to be flexible enough to have many different types of people or other entities be owners.

General Rule- No Member Limitations Imposed by Statutes

A member is the technical term used to designate an owner.

Because of this desired flexibility, the laws of every state do not place residence or citizen restrictions on who can be a member of a limited liability company. Despite this, the most common questions about this kind of entity is who can own one.

First, you do not need to be a resident of a state in order to own an LLC formed in that state.

Second, you do not even need to be a resident or citizen of the United States. There are many legal entities that are owned by foreign people and businesses.

Third, any kind of legal person can own one or an interest in one. For example, a member of an LLC can be persons, corporations, trusts, partnerships, or other limited liability companies.

There are Some Exceptions

The above rules apply for general companies. Some states have professional LLC entities. These entities have significant limitations on ownership. Generally, every member must be licensed to provide the regulated service that the legal entity was formed to provide.

If you are planning on conducting a business that is regulated by other state departments, those regulations may impose member and other limitations. Accordingly, it is important to check with all applicable laws and restrictions when deciding on who can and should be a member of your business.

The Operating Agreement Can Impose Limitations

While the LLC laws do not impose restrictions, it is important to review the operating agreement of a particular one to confirm there are no contractually imposed restrictions. The statutes allow for every limited liability to impose its own set of rules and restrictions.

The operating agreement is the official document that establishes ownership and puts in place a set of rules, policies and procedures that must be followed by members, managers, and the business itself.

With respect to members, the agreement will usually have an entire section outlining how one becomes a member and the rights and obligations of each one.

If you are forming a new LLC, then you need to be sure that your agreement does not impose any residence restrictions with regard to who can be an owner in the entity.

Summary

As you can see, this determination really depends on the nature of the particular company and its business, the operating agreement and the specific laws and regulations of each state.

Granting membership status to a person or other entity is a big deal. When one becomes a member, certain rights arise. The new person is your partner (sometimes for life) in the business.

Because this step is so significant, make sure you think through all the implications and please retain the services of a competent lawyer to help ensure you protect your interests and those of your business.

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