The Structure of the Limited Liability Company

By Rick Bell Wednesday, April 1, 2009

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.

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

More By Rick Bell

There are 5 comments left for The Structure of the Limited Liability Company

Carlos Ramey said: Wednesday, September 2, 2020

How do I remove myself as a member of an LLC?

HBS Staff replied: Wednesday, September 2, 2020

Membership changes in a Delaware LLC are typically noted in the LLC's operating agreement. This article will give you more information, as well as a template for an amendment due to the resignation of a member:

Joe Martin said: Thursday, August 16, 2018

My partner and I have a formed Manager Managed LLC. We are bringing in a member to whom we will assign a percentage. His arrangement is such that he will not receive ANY decision making capacity in the Organization. Can I just edit the template Operating Agreement doc you provided to reflect this? Any additional advice or possible pitfalls we should be on the lookout for? Appreciate the help! Love your company - great marketing.

HBS Staff replied: Monday, August 20, 2018

Joe, the Delaware legislature created the limited liability company (LLC) in such a way as to allow the LLC's members the freedom to contract with one another upon whatever terms they deem are best suited to their company. The fundamental terms of an LLC’s ownership, operation and management are set forth in its LLC Operating Agreement. Clients will traditionally amend their internal LLC agreement to reflect the change to the ownership or management structure. We will not need to know of the change and neither will Delaware.  

UNITED NOTIONS FILM LLC said: Thursday, May 10, 2018

Hi, I would like to remove and included a new member to my Partnership. unfortunately the Division of Corporations from Delaware its not easy to handle or maybe i don't know how to do the changes my self. if some one can help me how to do the changes or explain me what instructions I have to follow i really appreciated.

HBS Staff replied: Monday, May 14, 2018

Hello. For a Delaware Limited Partnership, the only member listed on the formation document is the general partner.

Information such as the member(s) name, address and the percentage of the business owned is not required to be provided to the state of Delaware and therefore is not part of the public record. This information is kept on file internally within the LP Agreement, or the LLC Operating Agreement, if it's an LLC.

The LP's Operating Agreement can be altered as needed by the members, without filing the changes with the state of Delaware. Some of the typical changes people make are the removal or addition of a member or the change in percentage of a member's ownership.

The LP's Operating Agreement must be amended to reflect that a new member is now part of the LP, or to reflect the removal of a member, and all current members must sign the newly amended LP Agreement, but you are not required to file the amended Agreement with the state of Delaware.

You can find more information here:

Feel free to call us or live chat with if you need further information.

Kate H said: Monday, March 19, 2018

Thanks for elaborating on the structure of an LLC.  As your article describes, the flexibility of an LLC makes it desirable for entrepreneurs, since it "fits the deal like a glove." Thanks again for the useful article. I’ve enjoyed researching the structures of LLCs and how they apply in the state of Delaware, even as questions arise concerning jurisdictions and the impact of out-of-state and in-state residency.

HBS Staff replied: Tuesday, March 20, 2018

We aer so glad you found our blog interesting and helpful. Thanks so much for reading and we hope you visit our site again soon.

gregor brajovic said: Tuesday, March 1, 2016

I would like to open LLC company in Delaware for Referral marketing company MLM that will run wellness and beauty marketing internationally, using BGS Labs SUI licensed technology, so therefore in the future BGS Labs will acquire some equity in the company. Can you advise please? As much as i read, LLC looks like the best choice, but i would like to be advised from your side. Best regards Gregor

HBS Staff replied: Thursday, March 3, 2016

Mr. Brajovic, please feel free to call our outstanding customer support team at 1-800-345-2677 or 302-546-7400. They can advise you on any company formation questions you may have.

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