Llc

[DTS]

Can employees of an LLC be titled as "managing members"? I say this would classify them as partners, which they can't be.

Thank you,

Dennis

[Gretel]

I agree with you Dennis. "Member" means partner. The employee would be a manager and the LLC then would be manager managed and not member managed, which effects SUTA.

[DTS]

Gabriele

I ran across this last night, but was a little to tired to read further. I will today. I am concerned this wrong terminology will cause my client some trouble down the road.

Thanks for the clarification,

Dennis

[DTS]

Llc

Gabriele,

As I told you, I wanted to read up a little more on your descriptions of managing members or managing managers. I did, which has led me to ask you a couple more questions. A quick tale of the situation:

My two clients, the true managing members of the LLC are in the process of drafting the Operating Agreement, which has them listed as the managing members.

However, they also have 6 other "employees" listed as managing members (I am doing payroll for them as salaried employees). I think we're in agreement that the 6 can't be titled like that. The employees have titles such as, VP of Sales, VP of Whatever...

From the research I did this morning, managing managers appear to have final decision making power in areas they are in control of, which my clients will never allow, but this aspect could be eliminated and another plan could be drafted in the OA. I'm assuming they can retain the title managing managers and still draw the employee salary. I have found nothing that states this specifically other than a company will HIRE managing managers to ease the load of the owners.

Do you understand this the same way? If not, can you direct me to your source? I am posting on two separate threads for the same LLC and will tie this mess together if you can confirm.

Any help would be appreciated.

Dennis

[oceanlovin'ea]

The employees are just that, employees of the LLC. I wouldn't think it would matter what you called them. They are still just employees.

When the LLC was set up, only 2 people are listed on the LLC documentation with the state as the owners or partners of the LLC. Is that correct? Are they being taxed as a partnership or a corporation? The state is only concerned with the names of the members of the LLC.

I don't know a lot about LLCs. But that is what makes sense to me.

Linda F

[DTS]

Linda

Thanks for jumping in.

I understand what an employee is. However, my only concern is the wording. I am trying to find out if the managing managers are considered employees or are considered members of the LLC.

I am just trying to head off some problems down the road. I am getting the impression over the last few days of phone calls and emails, that my advice is falling on deaf ears. So, I am going to let them get this OA finished the way they want and they will have to live with the consequences, good or bad.

Dennis

[TaxBird]

Thanks for jumping in.

I understand what an employee is. However, my only concern is the wording. I am trying to find out if the managing managers are considered employees or are considered members of the LLC.

I am just trying to head off some problems down the road. I am getting the impression over the last few days of phone calls and emails, that my advice is falling on deaf ears. So, I am going to let them get this OA finished the way they want and they will have to live with the consequences, good or bad.

Dennis

I take it they're doing the OA after that fact? And are they doing it themselves? (Bad move)

It may be that they are trying to create a second class of stock (profits only, loss only or P&L only) as a way of incentive-izing people who would otherwise be employees? If so, they need to make that clear in the OA.

In any case, it sounds like by including them (the 6 employees) in the OA (without distinction) they are inadvertantly conferring ownership 'of some kind'. They need to keep the 6 out of the OA - which is I think what set your spider sense tingling.

Tell them to quit being cheapos and get an attorney in on this.

[DTS]

TaxBird

You hit the nail right on the head! And yes, they do have an attorney who is setting this up and is semi-clueless.

I told them just what you mentioned about leaving them OUT of the OA, but they want this "touchy-feely-all inclusion" with them and unfortunately, I believe they are about to realize their hopes and desires!

Thanks for helping out, I appreciate it.

Dennis

[TaxBird]

You hit the nail right on the head! And yes, they do have an attorney who is setting this up and is semi-clueless.

I told them just what you mentioned about leaving them OUT of the OA, but they want this "touchy-feely-all inclusion" with them and unfortunately, I believe they are about to realize their hopes and desires!

Thanks for helping out, I appreciate it.

Dennis

They HAVE an attorney? Uh boy!

Well, let's hope they're going for the second class of stock thing. Lots to track but then lots to bill. (Not satisfying, I know - had to throw that in there)

[Lion]

Operating Agreement

I'd suggest keeping the operating agreement confined to the LLC members. Employees can be addressed in employment contracts. Remind them to include in their OA procedures for a member leaving, for dissolving the LLC, etc.; it's not just for operating the LLC but also for stopping or changing the operation of the LLC. What to do when one wants to retire or dies (rights of the spouse or estate or children) or the business is in the red -- how long is too long? -- or wants to get rid of a member... My son was working for a firm where the partners started feuding; he called it a "business divorce." Think of the OA as a pre-nup.

[DTS]

Lion

Lion,

I like the remark "LLC pre-nup". I really have tried to tell these guys a lot of this stuff. However, I keep getting this nagging feeling that the attorney is better at smoozing than I am.

I talked to my wife over the last couple of days and a good friend last night to see if my gut was telling me true. Both confirmed what I'm thinking, which is to cut the line and be done with this nonsense. I intend to do this afternoon.

I really don't mind bending over backwards for any client, as long as they are not wasting my time. This situation is a big waste of my time and will become a humongous nightmare for me later on if I don't sever all input on my end that will be miswritten or misconstrued down the road.

Dennis

[S T]

Llc

Dennis,
From another thread isn't your LLC client electing partnership, not S Corp. If so then I don't believe there is a second class of stock rule.

However, I would hope their attorney would be guiding them correctly and have the tax information source at hand. We have all seen where entity formations have created undue tax consequences.

This might not be on target, but seemed to have some good info regarding S Corps-partnership and LLC http://www.nvinc.com/report4.htm

Sandy

[DTS]

Llc

Sandy,

You are correct, they are filing as a partnership. TaxBird may have thought they were a corp. and if that was the case, I knew what was implied.

Thank you for the link. I will take a look at it.

Dennis

[S T]

Prior Link

I thought maybe depending on how the employees were receiving the additional interests or for that matter non-employees in the LLC, that the section entitled "Equity Interests Received for Services" might be of some interest.

Sandy

[Gretel]

Boy, everyone was at work yesterday. I was too but not in my office.

Dennis, I noticed that in your first post you were referring to managing members, in you second to managing managers. Only the term member if it isn't a member could become a problem but not for you and I agree with everything said in the responses.

By the way, only a good lawyer knows what he is talking about. Some years ago I helped a client whose husband had deceased and that had set up living trusts and paid over $7,000 in fees. I never had done a trust return before and didn't know much about trusts in general. Do I did a lot of reading to help this client sleep again. And when I finally contacted the lawyer with some intelligent questions and realized that this lawyer had no idea how to deal with what he had set up and was waiting for my 1041 to use it to do his job.