Can an LLC Have Principals?
Multiple-member limited liability companies, or LLCs, are entities that are legally separate from their owners but offer some of the benefits of a corporation with the tax treatment of a general partnership. With such structural range, LLC owners can have more of a quandary than other small-business owners regarding what title to put on business cards and legal documents. Some owners like to use the term "principal". Using principal vs. owner tends to come down to logistical preference.
Company principals are owners of all or a portion of a private company. A principal is the one who can sign legal documents on behalf of a company or designate an agent to do so on her behalf. A principal in a transaction is someone who has an ownership stake or vested interest in that transaction. Under these various definitions, LLC owners are company principals, although all owners may not have the same legal authorizations.
Legally, a person or business that owns a stake in a limited liability company is referred to as a member. Whenever you correspond with or submit any documentation to your state's secretary of state, you will need to use the term "member" when referring to the LLC's owners. Unofficially, you can call yourself a principal. For example, some owners prefer to use "principal" because the general public often thinks "member" refers to a trade group, business association or similar membership-driven affiliation.
If you and other members want to officially title your ownership stakes or positions as “principal”, you will first need to get all members to agree to the use of this designation for you or for all members who want it. Then you must outline what the title of “principal” means and what, if any, duties come with the title. Ideally, this description would be part of your operating agreement, but any document signed by all members will suffice to make this change.
If you play an active role in managing the company and use the term "principal" to describe your role, the operating agreement or other signed agreements must also authorize you to sign documents using this term. By doing this, your LLC avoids legal confusion. If other members use the term "principal" as well, you can add clarity by using the term "managing principal" as your official title for as long as you fill the managing member role.