Centralized Management and Transferability of Interests

Centralized Management

A business organization has centralized management when one or more persons have exclusive authority to manage its day-to-day conduct. The majority of Limited Liability Company’s lack of corporate characteristics of centralized management because most Limited Liability Company statutes in most states provide that members manage the company directly, and Limited Liability Companies that do not have separate managers lack the corporate characteristic of centralized management. But it some states it’s required that Limited Liability Companies have one or more managers to manage the company. If the operating agreement of a Limited Liability Company or articles of organization requires that each and every member be a manager, then in all likelihood the Limited Liability Company lacks corporate characteristics of centralized management. On the other hand, if members designate nonmembers to manage the company or designate member-managers who do not own a substantial portion of the Limited Liability Company’s membership interests, then the Limited Liability Company may possess the corporate characteristic of centralized management.

Transferability of Interests

A business form possesses free transferability of interests when one of its owners has the essential power to substitute someone else as a new owner of the business. For example, the majority of corporate shareholders may sell their shares freely thereby transferring their ownership interest to another person, without the consent of the other shareholders. But, a Limited Liability Company-member may not substitute another person as a new member unless the existing members agree to the substitution. Typically, in a Limited Liability Company, a member has the power only to assign his economic rights. Therefore, Limited Liability Company members lack the ability to freely transfer substantial amounts of their interest in the company.

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