One of your most important decisions in forming an LLC is whether the LLC will be Member-Managed or Manager-Managed. In a Member-Managed LLC, the members (who are the owners) are actively involved in the day-to-day operations of the LLC. In a Manager-Managed LLC, only certain designated members (or even outside third parties such as a board of directors) make decisions for the LLC. The remaining members are investors only, without decision-making responsibility or authority.

Advantages of Member-Managed LLCs

In most states, Member-Managed is the default management structure for LLCs. If a management structure isn’t chosen by the LLC organizer in those states, it will be deemed Member-Managed. 

The Member-Managed structure benefits small businesses, especially startups, who have only one, or just a few, members and want to ensure that each member is running the business. Almost all single-member LLCs are Member-Managed.

Advantages of Manager-Managed LLCs

If you want your LLC to function more like a corporation, you should choose a Manager-Managed LLC. Members of Manager-Managed LLCs control their LLC by voting on significant issues affecting the LLC, instead of being actively involved in the daily operations of the LLC. 

The Manager-Managed structure is most appropriate in the following situations:

  • The LLC has a large number of members. It’s impractical for LLCs with many members for those members to be involved in each management decision affecting the company. A Manager-Managed LLC allows the company to appoint managers to respond quickly to changing conditions affecting the business, without the burden of having members vote on every decision. Additionally, third parties with specific expertise, such as outside counsel and accountants, can also be retained through this management structure, to fill in member knowledge gaps.
  • Members of the LLC want to be investors. The ability to appoint managers and hire third parties to do the work of the LLC also provides members with an option for a passive role as investors in the company without risking exposure to poor business choices by inexperienced members.

All LLCs should have a written Operating Agreement outlining the rights and responsibilities of members (and managers, if any), particularly if the LLC will be Manager-Managed. If you don’t have an Operating Agreement in place, you risk disputes concerning issues (especially something basic) that could have been addressed and agreed to upfront before your business began. Without an Operating Agreement, the rules in your state’s LLC statute will apply—which may or may not be beneficial to your business.

How Becker Law LCC Can Help

Serving creatives, startups, and small businesses in Metro Atlanta, Becker Law LLC offers affordable personalized legal advice with “frictionless” customer service. If you have questions about whether a Member-Managed or Manager-Managed LLC is most appropriate for your business, contact our office to learn how we can help you choose the correct legal structure for your company.

Be the first to comment!
Post a Comment