The voting rights of limited liability company owners, who are called members, can be outlined in the company's operating agreement. This document includes the rules on how the voting process for a company works. If changes are to be made to voting rights, they generally have to be agreed upon by members via a vote.
LLC members can determine how to split the voting power amongst them. One of the standard ways voting power is distributed is each member representing one vote. But voting power can be distributed other ways, too. For example, members who have active roles with company operations can be the only ones that vote, leaving out members who don't participate in daily business activities. Or members can designate a specific group of members to handle the voting process. Also, voting rights can be based on ownership interests. If one member owns 40 percent of the company and three other members own 20 percent, one member vote would represent 40 percent of the ballot, essentially counting for two votes.
Advertisement Article continues below this adThere are a plethora of business issues that can be settled by member voting. Some issues can be the rules on accepting or dismissing members from the LLC, the roles and responsibilities of the members, business transactions that require significant investments such as purchasing an office building or buying a company. Another issue members can vote on is how profits and losses are distributed. Each member can receive a share based on their ownership interests or vote for special allocations that can distribute profits and losses differently. In this case, members may vote to give more profits to members who have their hands on the company's day-to-day operations.
The operating agreement is also a guide for how members cast their votes. The rules in the operating agreement may state all voters must cast their ballots in person during designated meetings. Members who aren't present may be able to cast their votes under certain circumstances. If not in person, the operating agreement could stipulate votes may be cast by proxy via e-mail, telephone or by another person.
Advertisement Article continues below this adBy having an LLC operating agreement, members have to stick by what they agreed to. This may not be a requirement to have but an operating agreement can stand up in litigation if any member tries to contest its validity. The importance of an operating agreement extends to members having control of their operations. Without an agreement in place, by default, voting rights, distribution of profits and losses and other issues would be decided by state law, which may not suit the best interests of the members.