One of the underlying principles behind the limited liability company is that it was created by legislators to be the easiest and most flexible legal entity to be used for a variety of purposes.
While running a business is the most common use, it is also used to maintain real estate or other assets, family property, self-directed IRAs, and other investments and estate planning.
Due to its many uses, this type of vehicle must be flexible enough for many different types of people or other entities to own.
General rule: no limitations on members imposed by the statutes
A member is the technical term used to designate an owner.
Because of this desired flexibility, individual state laws do not place residency or citizenship restrictions on who can be a member of a limited liability company. Despite this, the most common question about these types of entities is who can have one.
First, you do not need to be a resident of a state to own an LLC formed in that state.
Second, you don’t even need to be a resident or citizen of the United States. There are many legal entities that are owned by foreign individuals and companies.
Third, any type of legal entity can own one or have a stake in one. For example, a member of an LLC can be individuals, corporations, trusts, partnerships, or other limited liability companies.
There are some exceptions
The above rules apply to companies in general. Some states have professional LLC entities. These entities have significant limitations on ownership. In general, each member must have a license to provide the regulated service for which the legal entity was formed.
If you plan to conduct a business that is regulated by other state departments, those regulations may impose membership and other limitations. Consequently, it is important to check all applicable laws and restrictions when deciding who can and should be a member of your company.
The Operating Agreement May Impose Limitations
While LLC laws do not impose restrictions, it is important to review the operating agreement of an individual to confirm that there are no restrictions imposed by contract. Statutes allow each limited liability to impose its own set of rules and restrictions.
The operating agreement is the official document that establishes ownership and establishes a set of rules, policies, and procedures that must be followed by members, managers, and the company itself.
With respect to members, the agreement will usually have an entire section describing how one becomes a member and the rights and obligations of each.
If you are forming a new LLC, you should ensure that your agreement does not place residency restrictions on who can own the entity.
Summary
As you can see, this determination really depends on the nature of the particular company and its business, the operating agreement, and the specific laws and regulations of each state.
Granting membership status to a person or other entity is a big deal. When one becomes a member, certain rights arise. The new person is her partner (sometimes for life) in the business.
Because this step is so important, be sure to think through all the implications and retain the services of a competent attorney to help protect your interests and those of your business.