Members: Overview, definition, and example
What are members?
In a legal and business context, members refer to individuals or entities that are part of a specific organization, such as a limited liability company (LLC), partnership, cooperative, or other types of membership-based entities. Members typically hold ownership stakes in the organization and are entitled to participate in its decision-making processes, share in profits and losses, and have certain rights and responsibilities as outlined in the governing documents of the entity, such as the operating agreement or partnership agreement.
Members in an LLC, for example, have an ownership interest in the company and may also be involved in the management of the business, depending on the structure (e.g., member-managed or manager-managed). In cooperatives, members are usually customers or employees who have a say in the operation of the business.
Why are members important?
Members are important because they are the fundamental building blocks of membership-based organizations. Their involvement and investment help shape the direction and success of the entity. Members often contribute to the governance and financial health of the organization by voting on major decisions, contributing capital, and taking part in key activities.
In some cases, members may have personal liability or other obligations tied to the organization, such as in partnerships or LLCs. Understanding the roles and responsibilities of members is critical to the functioning and legal standing of the entity, and their rights and duties are typically outlined in the entity’s founding documents.
Understanding members through an example
Imagine a startup that forms a limited liability company (LLC). The LLC has three members who each hold a 33% ownership stake. As members, they have the right to vote on key decisions, such as hiring executives, taking on debt, or expanding into new markets. The members also share in the profits and losses of the company, and their contributions may influence the operational decisions of the business.
In another example, a cooperative formed to provide consumer goods to local residents has several members who are also the customers of the business. These members are involved in the cooperative's decision-making process, including choosing the leadership team and determining how profits should be reinvested in the community or distributed among the members.
An example of a members clause
Here’s how a members clause might look in a partnership or LLC agreement:
“The Members of the LLC shall have the right to vote on all major decisions concerning the operations and management of the LLC, including but not limited to amendments to the operating agreement, the sale of assets, and the admission of new members. Each Member’s voting power is based on their ownership percentage, as set forth in Section [Insert Number] of this Agreement. The Members will share in the profits and losses of the LLC in proportion to their ownership interest.”
Conclusion
Members play a central role in the structure and operations of many business organizations, particularly those that are membership-based, such as LLCs, cooperatives, and partnerships. They have rights and responsibilities, including voting on key decisions, sharing in the profits and losses, and ensuring that the entity is operated in accordance with its governing documents. Understanding the role of members is crucial for the effective functioning and legal compliance of the organization.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.