Why is a LLC the "most flexible" entity type?

You often hear that the LLC is more "flexible" than a corporation.  Corporations and LLCs are created by statute, meaning that the state grants the authority to exist upon the filing of the appropriate paperwork and compliance with the necessary steps.  

Corporations have been allowed to exist for hundreds of years, therefore, laws governing corporations and their operations have been around for hundreds of years.  The corporate "formalities" are set by each state's laws and can be perceived as difficult and cumbersome for the small business person that wants to run their business, not a multi-national corporation; yes, the rules are basically the same.

Corporations have a strict management structure that is set by law.  A corporation has a board of directors that set the overall goals and policies for the corporation.  The officers (chief executive officer, chief financial officer, etc.) are responsible for carrying out the instructions of the board of directors and the day-to-day operation of the corporation.  Each person (though one person can have more than one role) has specific tasks that they are responsible for.    Finally, the shareholders are responsible to elect the board of directors.

A LLC also has laws that it must comply with, however, many of the laws that govern how the LLC is to be managed can be changed via an operating agreement.  A LLC can be managed by the members, or the members can elect a manager, or managers, to run the LLC.  Members and managers role operations of the LLC are divided in the operating agreement.  

The voting rights of the members can also be modified by the operating agreement.  The members can have voting rights equal to their ownership interest or the members can be declared to have equal rights without regard to the percentage of the LLC that they own.

The flexibility afforded to LLCs is the ability of the operating agreement to modify the default rules set by law.  The flexibility of the operating agreement is enhanced by the ability of the operating agreement to be amended or modified as the needs of the LLC change.

LLC, BusinessEric StoweComment