Joining an LLC as a new member can be a great professional opportunity. But with all the excitement, many people forget to take a serious look at what they’re signing up for. Part of the reason is that each LLC is different – LLCs are controlled mainly by the Operating Agreement written by existing members. Here are the four things everyone must know before they join an LLC.
1. You can’t just “quit” an LLC like you can a job.
Some LLCs might offer you a membership interest instead of hiring you as an employee. There are certainly advantages to this, but one disadvantage is that it’s much harder to dissociate from the LLC as a member than it is to quit as an employee.
2. Not all members play the same role.
If you want to play an active role in running the business, make sure you’re joining as a managing member and the Operating Agreement spells out your decision-making ability. Passive members simply provide funds and sit back.
3. Membership interests are not created equal.
Some members may (and often do) have a larger percentage than the others. They might have more say in running the company or be entitled to a bigger percentage of profits. Make sure the percentage you’re being offered is sufficient for what you want to get out of the opportunity.
Joining an LLC requires you to make an initial capital contribution (usually), but many people don’t realize they can be on the hook for additional contributions down the road. Failing to make these “capital calls” could lead to dilution of your ownership, losing your interest entirely, or lawsuits.
Fortunately, all of these concerns should be addressed in an LLC’s Operating Agreement. Taking a little time to review the Operating Agreement with an experienced business attorney can help you figure out if becoming a member is a good opportunity for you.