Shareholders own corporations. Partners own partnerships. The sole proprietor owns a sole proprietorship. So who owns Mr. LLC? Members do.
When you first created Mr. LLC you identified its members. The members contributed money, services, promissory notes, or assets to Mr. LLC to become a member. They own Mr. LLC.
The members have control over Mr. LLC according to the governance provisions in the operating agreement and the Alaska LLC statutes or both. The members make all of Mr. LLC’s decisions or they delegate the decisions to a manager. If the members delegate decisions to a manager, they can reserve some of the decisions for themselves. These are called member matters and are normally big decisions such as buying or selling expensive assets, signing big contracts, hiring important employees, merging with another company, doing yearly budgets, and other similar decisions.
The members normally make these big decisions by voting. There are a number of ways the members can vote. They can require a majority vote, unanimous vote, or certain percentage of votes to make a decision. They can give one vote to each member or they can give votes proportionate to the member’s ownership.
The members can also set up different classes of membership where each member has different rights. For example, some members may have governing rights while other members would have only a right to the profits.
Whether Mr. LLC succeeds depends largely on its LLC membership. When you started Mr. LLC you got to choose Mr. LLC’s members. You might be the only member or your LLC might have multiple members. In either case you know the people you’re going into business with when you started Mr. LLC.
But things might change as time goes on. A member might want to sell his interest. There is always the chance a member may die, become disabled, file for bankruptcy, resign, divorce, or any number of things that change membership. If you don’t have an operating agreement, then these events can change Mr. LLC in unexpected ways.
That’s why you’ll want a good buy/sell agreement to set the triggers for the events such as rights of first refusal, the purchase price, and other clauses. We’ll talk more about these in the chapter on buy-sell agreements.