How are distributions made?

Although the default provisions provide for equal distributions, almost any system or formula can be agreed upon. For tax purposes, the distribution system may need to have some economic basis, but as a matter of state law the members can agree on anything they want. The allocation of profit or loss and the actual distribution of money or property are separate matters, and do not have to be either simultaneous or equal.

How does voting work?

Default provisions give each member one vote (regardless of the size of their

own capital interests), but again this can be changed in the Operating Agreement. Voting power can be made proportional to ownership or completely unconnected to ownership. With certain exceptions, most decisions require a simple majority vote.

Do members of a Limited Liability Company get paid for services to the entity?

Members performing services for the entity are not automatically entitled to wages,

salaries, or any other compensation, although compensation can be agreed upon. Members advancing funds for legitimate expenses of the entity are entitled to reimbursement.

What are the rights of third parties dealing with the Limited Liability Company?

Generally, a third party dealing with a Limited Liability Company will want to determine whether the Limited Liability Company is member-managed or manager-managed, as this determines who is empowered to act on behalf of the entity.

Who has the power to sign?

In a manager-managed Limited Liability Company, only the named managers have the power to bind the company. For example, a deed conveying property from the Limited Liability Company, a mortgage, or a written contract is invalid unless signed by a manager. In general, any one manager can bind the Limited Liability Company, even if there are multiple managers. Managers are normally recognized to have authority to act on behalf of the Limited Liability Company. However, if the third party dealing with a manager knew or had notice the manager lacked authority to do a particular act, then the manager does not bind the Limited Liability Company by doing that act. In a member-managed LLC, any member has the power to bind the Limited Liability Company in carrying on in the ordinary course of business of the type carried on by the Limited Liability Company.

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