A limited liability company is an excellent vehicle for families to pool their money and invest alongside one another. The power of an LLC operating agreement enables a family to pool their money through a limited liability company to invest in everything from stocks, bonds, and real estate to mutual funds and start-up businesses. An LLC operating agreement can include any number of provisions.

The operating agreement, for example, could prohibit individual family members from selling their limited liability company shares without the permission of all other members. This not only forces them to stay invested in the LLC, but it also relieves everyone else of the worry of discovering that a shareholder they don’t like now has a say in their business.

The operating agreement could also require individual family members to make regular cash or asset contributions, such as each grandchild contributing $50 per month to the LLC. Another provision of an LLC operating agreement may restrict investments to specific types of assets, such as stocks with dividend yields greater than 5% or rental properties in a specific zip code. You could even mandate that the LLC only construct car washes in specific states.

Family LLC Structures for Pooled Investments

Here are just a few of the many options available to a family when forming an LLC to serve as a pooled investment vehicle.

Parent or Grandparent Controlled LLCS

In this case, a family forms an LLC and elects the parents or grandparents as managers, delegating complete control over day-to-day decisions to them. Other members of the family (children, cousins, siblings, and grandchildren) own membership interests in the LLC. These can be from their own savings, where they purchase their own investment in the firm, or they can be given as gifts from older family members who want to pass money on to the next generation.

Member Controlled LLCs

If you want your family to work as a cohesive unit, you can write your LLC operating agreement so that all investment decisions must be approved by every single shareholder or a certain percentage of the shareholders. This way, you can foster a collaborative culture.

Walton Enterprises LLC, the vehicle through which members of Sam Walton’s family own their shares of Wal-Mart Stores, Inc., is one of the most well-known family limited liability companies. Wal-Mart is effectively controlled by Walton Enterprises LLC, which is controlled by the Walton family. Every Christmas, the family gathers at Helen Walton’s house, and Wal-Mart executives make presentations to the LLC members.

Members decide whether to pay dividends, reinvest in other businesses such as Arvest Bank, or pursue a variety of other options. It has been reported that the family LLC will not make decisions unless everyone agrees, which explains how Wal-Mart has maintained consistent control, culture, and growth for nearly half a century.

Although you and your family may not have $100 billion to invest in your limited liability company like the Waltons, it is important to remember that they, too, started with almost nothing and built it from the ground up from a small store in Arkansas.

Disciplined investing over time can produce excellent results, especially when supported by a family culture that values wealth creation together. Cascade Investment LLC, Bill Gates’ private holding company, is another well-known family LLC. Cascade, which was funded over many decades by the systematic sale of Microsoft shares, now owns everything from luxury hotels to car dealerships, and railroad stakes to restaurants.