LLC Structure – Member-Managed vs Manager-Managed


Steve Goldstein
Steve Goldstein
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LLC Structure – Member Managed vs. Manager Managed: When you form a Limited Liability Company, you must specify the structure of your company. Deciding the management structure is as important as deciding the company’s name. It is not an easy task to decide on the managerial structure. Managers and members, depending on the structure, will have the authority over the functions of the company.

You can have either a member-managed LLC or a manager-managed LLC structure. Depending on this structure, LLCs decide on company decisions, transfer of profits, and overall decision-making. In this article, we develop the LLC managerial structure and related information. Get all the insights into the managerial structure – member-managed vs. manager-managed LLC on this page.

Types of LLC Management Structure

This type of business can be managed by two different management authorities- members and managers.

Member-Managed LLC

In the member-managed LLC, the entire team is formed by the members of the business owners of the concerned liability protection company. Here, the members will be responsible for carrying out all the daily operations regarding the business. For drawing out proper strategies, you can consult with GoDaddy and other such firms.

Manager-Managed LLC

In this type of management structure, the members will appoint a few persons as the managers. These managers are nothing but normal employees. Once they are given the role, these individuals will have complete rights to take the daily decisions and overlook the functioning of the businesses.

Member-Managed LLC Entity

As the name implies, you can understand that in a member-managed structure, it is the owners who will manage the entire business structure. They will be responsible for making all the business decisions, be it deciding the taxation, preparation and filing the legal documents, time management, handling conflict situations, and so on. The owners will have complete authority over the LLC business entity for as long as no change in the management is being brought upon.

Who Are the Members of an LLC?

LLCs can be owned by either a single person or multiple business owners. Whoever will form the company will officially become a member of the corporation. These people will be responsible for forming the LLC operating agreement, and at the time of filing the document, the forms of management should be declared.

Who Has the Ultimate Decision in a Member-Managed LLC?

In member-managed LLC, it is the members who will be responsible for making the decisions. They can either share the rights equally or based on the percentage of ownership. The member having higher shares in the company will have more say as compared to one with lesser shares.

When to Form a Member-Managed LLC

The members can play an active role in the management structure of the LLC only when the corporation has a few members involved. Also, make sure that all the participating members are on the same page in terms of handling the duties for day-to-day operations. Companies like GoDaddy will help you a lot with the formation process.

Pros of a Member-Managed LLC

  • All the members will have equal rights over every management decision to be taken in the LLC.
  • It is a less complicated structure since there will be no separate management level.
  • This is the perfect structure for every brick-and-mortar business.

Cons of a Member-Managed LLC

  • With day management, the owners will not get enough time to focus on another strategic side of the LLC.
  • Raising money from investors is very difficult.

Manager-Managed LLC Entity

In the manager-managed business structure, the people will have the authority over some of the main domains of the LLC, like dissolution, day-to-day operations, financial transactions, and so on. The decision-making power rests in their hand, and hence, they don’t need approval from the members to bring any change in the LLC structure.

Who Are the Managers of an LLC?

When the members decide not to intervene in the management system of the corporations, they appoint normal employees as the managers of the LLC. These managers are answerable to the boards of directors, which consists of both the members and the investors. Managers are nothing but the non-members of the LLC who are given all the rights to operate the business on a daily basis.

Who Has the Ultimate decision in the Manager-Managed LLC?

In this kind of management control, over 70% of the power rests with the managers employed by the members. However, there are certain cases where the manager will need permission from the members to proceed, like in preparing and approving certain organization documents, managing the taxation, and so on.

When to Form a Manager-Managed LLC?

When the size of the LLC is huge with a number of business owners, the manager-managed business structure is the ideal one to consider.

Pros of a Manager-Managed LLC

  • Investors play a passive role in the manager-managed platform, and hence, such structures gain continuous cash flows.
  • This particular management company style allows the members to focus on more important aspects, like the expansion of the LLC, preparing the operating agreement, and so on.
  • Issues can be solved easily since the manager management doesn’t need the approval of all the members.

Cons of a Manager-Managed LLC

  • Members couldn’t interfere in the decision-making process in such a business structure.
  • The manager role needs more business knowledge for operating the Limited Liability Company (LLC), which is not always possible.

Can you change from member managed to manager-managed?

Yes, you can change the management from member managed to manager managed by making amendments in the Article of Organizations.

One of the key advantages of changing from member-managed to manager-managed is the ability to streamline decision-making processes. In a member-managed LLC, every decision, no matter how big or small, needs to be discussed and voted on by all members. This can lead to delays in executing important decisions and may even cause conflicts among members who have differing opinions. By appointing a manager or group of managers to handle day-to-day operations and make executive decisions, the business can operate more efficiently and effectively.

Additionally, transitioning to a manager-managed structure can help clarify roles and responsibilities within the company. In a member-managed LLC, it can be difficult to determine who should be in charge of certain tasks or areas of the business. This lack of clear leadership can lead to confusion and disorganization, which can negatively impact the overall performance of the company. With a manager-managed structure, the roles and responsibilities of each manager are clearly defined, making it easier for employees to know who to go to for specific issues or concerns.

Another advantage of moving to a manager-managed model is the potential for better accountability and performance evaluation. When all members of an LLC are involved in decision-making, it can be challenging to hold each individual accountable for their contributions to the business. By appointing managers to oversee specific aspects of the company, it becomes easier to track individual performance and set clear objectives for each manager to achieve. This can help motivate employees to take ownership of their work and strive for success.

Of course, transitioning from member-managed to manager-managed is not without its challenges. It may require some members to relinquish control and trust in the appointed managers to make decisions on behalf of the company. This can be a difficult transition for some individuals who are used to having a say in every aspect of the business. It is essential for all members to communicate openly and transparently throughout the transition process to ensure that everyone is on the same page and aligned with the new structure.

Overall, changing from member-managed to manager-managed can be a strategic move for businesses looking to scale and grow. It can help streamline decision-making processes, clarify roles and responsibilities, improve accountability, and ultimately drive better performance. While the transition may come with some challenges, the potential long-term benefits make it a worthwhile consideration for companies looking to take their operations to the next level.

F.A.Qs

How to choose between member-managed and manager-managed LLC structure?

Depending upon the structure of the personal Liability Protection company, you will have to decide on the member-managed or manager-managed LLC structure. If the members agree on taking all the decisions, member management is the best choice. However, if you want to handle the responsibility of others and focus on more essential issues, manager management will be ideal.

Is the manager the owner of the LLC?

No, in the operating agreement, it is only the members who will be mentioned as the business owners of the LLC. The managers are normal employees chosen by the members themselves.

How many managers can be appointed?

While you will draft the operating agreement, make sure to decide the number of managers who will supervise the company. You can either appoint one manager or multiple employees to handle the management responsibilities of your LLC.

In Conclusion

When you are forming an LLC you must decide whether you want a member-managed or a manager-managed LLC. For a large business, manager-managed LLC is desirable. Whereas, for a small and mid-sized business, member-managed LLC can be formed. You can get the pros and cons of each structure before your form your LLC.

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