Author: Brenton McWilliams
How is an Alabama Limited Liability Company Managed?
In Alabama, the rights and obligations of the limited liability company owners are typically set out in two separate documents. The certificate of formation, formerly referred to as the articles of incorporation, is filed with the probate office and secretary of state to form the LLC. Very little information is required for the certificate of information. Since the certificate of formation becomes public record after filing, it usually includes nothing more than the required information including the name of the LLC, the organizer, the name of the registered agent, the address of the registered and whether the LLC is a series LLC.
The other document is an agreement among the owners commonly referred to as a limited liability company agreement or operating agreement. The operating agreement is typically the sole document setting out the ownership of the LLC, each owner’s rights and obligations with respect to the LLC, how decisions are made between the owners and how authority over the LLC is delegated. There is no filing requirement for the operating agreement. The operating agreement is typically kept private to the owners and not released to the public.
As I discussed in the previous article What is a Limited Liability Company, the limited liability company is an extremely flexible business entity. There are limitless ways to setup management of the LLC, typically only constrained by the Alabama LLC statute or tax considerations. However, there are two common management forms among Alabama limited liability companies: the manager managed limited liability company and the owner managed limited liability. For the sake of simplicity, the term “owner” has been used up to this point when discussing the individuals or business entities who own the membership interests of the LLC. However, the more commonly used term is “member” since each LLC owner owns a membership interest in the LLC. This is similar to using the term shareholder when referring to the owners of a corporation.
In a manager managed limited liability company, the manager serves a function similar to a CEO of a corporation. The manager is selected by the LLC members and usually given broad authority over the actions of the LLC including the authority to hire and fire employees, purchase and sell property belonging to the LLC and bind the LLC to agreements with outside parties. Actions outside the scope of the manager’s authority, such as liquidating a substantial portion of the LLCs assets, will require a vote of the LLC members. The manager may be one of the LLC members or an outside party. The LLC operating agreement will include a procedure for appointing successor managers and removing a manager if necessary.
Another common management form for an Alabama limited liability company is an owner managed or member managed LLC. This setup is more practical where the owners are family members or there is less activity involved with the business as in the case of a holding company or a single property rental business. In a member managed LLC, each member (owner) is given individual authority to act for the LLC. Similar to the manger managed LLC, the actions the members may take individually are limited with more important or substantial actions being put to a vote by all members.
If you’re considering forming an LLC, amending the operating agreement of an existing LLC or if you need legal advice for your business, please call me at (251) 215-9275 or write me on the contact page to discuss how I can help.