LLC Operating Agreements: Voting Rights

Limited liability companies are corporate business entities run by at least one individual. When an LLC has more than one owner, some form of voting rights must be established so the members can determine how to carry out a course of action. The LLC's operating agreement -- essentially, a contract between each member setting forth each member's rights and responsibilities -- should contain a provision describing the voting rights.


One Member, One Vote

The most basic voting right is a simple one-member, one-vote rule, whereby each member has an equal say in the decision-making process. Under this arrangement, each member may cast one vote for any given action, and that vote carries the same weight as the other members' votes, regardless of the amount of capital or other contribution a particular member has made to the organization. One-member, one-vote can be problematic if there are an equal number of members in the LLC. In events of a tie, the LLC operating agreement should describe the deadlock resolution process, which may involve needing a third party, such as an arbitrator, to settle the dispute.

Video of the Day

Percentage of Share

All LLC members are not created equal. Two LLC members may have each contributed 35 percent of the total capital, while the third member only put in 30 percent. If voting rights are determined by a percentage share of the LLC, the members with the most ownership have the most authority in LLC decision-making. An easy way to understand this scenario is to assume that each percentage of ownership represents one vote. The members with 35 percent of the ownership have 35 votes each. Under this situation, potential problems exist if the majority owners team up and squeeze out the minority interest.


Majority Rule

Regardless of the type of voting rights, the LLC operating agreement may also describe the number of votes needed to pass a certain measure. Often, a simple majority is required for the motion to pass. Under this scenario, if the LLC has five members, at least three of those members must vote in favor of the motion in order for the motion to pass in a one-member, one-vote situation. Likewise, if voting is determined by a percentage of ownership, at least 51 percent of the shares must be cast in favor of passing the motion.



Super-majority -- Quorum

For some decisions, a super-majority may be required. Examples include choosing to offer an outside entity an ownership interest in the company. The LLC should define what constitutes a super-majority. Essentially, it can be anything more than a simple majority. In one-member, one-vote LLCs, the super-majority could be four out of the five members. Likewise, in a percentage LLC, the super-majority could be 80 percent of the ownership.



Report an Issue

screenshot of the current page

Screenshot loading...