Requirements of a Two-Owner LLC


A limited liability company allows business revenue to be distributed to individuals through personal tax returns. It is a convenient and popular choice for small businesses. While relatively simple to run, it becomes more complicated when more than one member is involved. The members of a two-owner LLC must be on the same page from inception.

The Operating Agreement

An LLC operating agreement is a document that outlines all of the provisions of the company. In a two-member LLC, this document spells out the requirements of both members. Not all states require this document. Nevertheless, it is wise to generate one in the case of a two-member LLC. This will clearly define the requirements for both members and can eliminate legal entanglements in the event of a non-amicable dissolution.

Management Duties

The operating agreement will outline each member’s interest and responsibility in the company. Two-member LLCs are commonly a 50/50 split. However, there are occasions when one member controls a greater interest. If this is the case, that member is typically designated as the managing member. This means that he has the authority to act on behalf of the LLC without the consent of the other. This can also be the case in an equal split, with one member acting more as a silent partner.

Costs and Expenses

Since an LLC is an operating company, there will be profits to be divvied up and expenses to be shared. Each partner will be liable for a specific amount of these profits and expenses. How much each is responsible for is part of the operating agreement. More often than not it will be an equal split, but if one person controls more of the LLC, he will likely shoulder more of the expenses and receive greater compensation from the profit.

Withdrawal or Death of a Member

At some point, one of the members may choose to withdraw from the LLC. If this happens, the operating agreement will usually dictate right of first refusal for the remaining member. This means the other member has the right to purchase the share for the same price as an open-market buyer. In the event of the death of one of the members, the deceased member’s heirs have the right to take over the economic share of the deceased member. The remaining member can agree to this or dissolve the LLC, paying the deceased member's portion to his heirs.

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