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Will I still be a partnership if I choose managed-managed LLC vs member managed LLC?

Hoboken, NJ |

I believe an LLC has 2 options: It can either choose to be a manager managed LLC or a member managed LLC.

I am starting a company with my sister who will be the 10% stakeholder with no initial financial commitment and I'll be the one with 90% ownership and whatever initial capital is required. I want the company to be manager managed and I will be the sole manager (CEO and Managing Partner).

In the above described scenario, will our company still be considered a partnership? Second, will there need to be an election to choose myself or do I just put myself in charge? Any other info will be much appreciated.

Thanks!

Attorney Answers 3


  1. Let me address the second of your questions first. A limited liability company with more than a single member should have an operating agreement. This agreement, which is similar to a partnership agreement, defines the roles, responsibilities and rights of the members. In particular, the operating agreement can include terms designating the managing member, what the rights and responsibilities of the managing member are, and how the managing member might be replaced.

    As to your first question, a complete answer would require you to indicate from what perspective you are asking the question. Are you concerned about personal liability? Federal tax treatment? Rights and obligations of the members? If you could be more specific, it would help in providing useful information.

    Please consult an attorney directly before taking action. This answer is intended for general information only and should not be taken as legal advice. My communication with you is not privileged and is not within, or intended to create, an attorney-client relationship. Pursuant to Circular 230 of the Department of Treasury: (1) no written statement to be provided by me relating to any Federal tax transaction or matter is intended to be used, and no such statement can be used, for the purpose of avoiding penalties that may be imposed on the taxpayer, and (2) such written statement may not be used by any person to support the promotion or marketing of or to recommend any Federal tax transaction or matter.


  2. I am an attorney licensed in the Commonwealth of Pennsylvania, and the States of Delaware and New Jersey. My practice includes employment, business and health care law. Before I respond to your inquiry, I must state that we have not spoken, I have not reviewed the relevant documents and facts, and I do not represent you. Therefore, my discussion below is not a legal opinion, but is informational only. Finally, my discussion applies only to issues to which Pennsylvania, Delaware, New Jersey or Federal law applies.

    That being said, a multi-member LLC can be taxed as a partnership, as an S Corp, or as a C Corp. Whether you are member-managed or manager-managed is irrelevant. You cannot just 'put yourself in charge' - you need to follow either the rules set out in your operating agreement, or by statute if you have no operating agreement. Since you are a 90% owner, you likely will be able to choose yourself as the manager of the business, but failing to follow the right process can cause you significant headaches later. You should meet with a business attorney to get an understanding of what processes you need to follow, what agreements you need to have in place and how to move forward with your business.

    If you would like to discuss this matter further, please feel free to contact me at the below address(es) or telephone number.

    /Christopher E. Ezold/

    The Ezold Law Firm, P.C.
    Employment, Business and Health Law
    One Belmont Avenue, Suite 501
    Bala Cynwyd, PA 19004
    (610) 660-5585
    Cezold@Ezoldlaw.com
    www.ezoldlaw.com

    Answered 8 months ago. Before I respond to your inquiry, I must state that we have not spoken, I have not reviewed the relevant documents and facts, and I do not represent you. Therefore, my discussion below is not a legal opinion, but is informational only. Finally, my discussion applies only to issues to which Pennsylvania, New Jersey or Federal law apply, unless otherwise specified. /Christopher E. Ezold/ The Ezold Law Firm, P.C. One Belmont Avenue, Suite 501 Bala Cynwyd, PA 19004 (610) 660-5585 Cezold@Ezoldlaw.com www.ezoldlaw.com


  3. In reference to the formation of the limited liability company, please have an operating agreement between you and the other member. If you do not have an operating agreement, the New Jersey statutes will be the defaultt agreement.

    The information is for general information purposes only. Nothing from this comment should be taken as legal advice for any individual case or situation. This information does not create and does not constitute an attorney-client relationship or a prospective attorney relationship.

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