LLC Structure – Member-Managed vs Manager-Managed


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.

Member-managed structures are often preferred by smaller businesses or partnerships where every member has a vested interest in the day-to-day operations. In this structure, decisions are made collectively by the members, and each member has a say in how the business is run. This can foster a sense of democracy and shared responsibility among the members, leading to a more cohesive and collaborative work environment.

However, as businesses grow and evolve, there may come a time when the member-managed structure no longer serves the needs of the company effectively. In some cases, disputes or disagreements among members can hinder decision-making and productivity, leading to stagnation or even the eventual downfall of the business. If this is the case, switching to a manager-managed structure may be necessary for the long-term survival and success of the company.

Manager-managed structures, on the other hand, involve a designated individual or group of individuals who are responsible for making key decisions and overseeing the day-to-day operations of the business. This can provide more efficiency and direction to the company, as decisions can be made swiftly and with a clear hierarchy in place. Managers can bring expertise and experience to the table, driving the business forward in a strategic and organized manner.

Switching from a member-managed to a manager-managed structure can be a daunting task, as it requires restructuring the internal dynamics and decision-making processes of the company. It may involve hiring a professional manager or promoting a current employee to a managerial position, which can be met with resistance or skepticism from members who are used to having a say in operational matters.

However, it is important to consider the long-term benefits of making such a change. A manager-managed structure can bring a sense of stability and direction to the business, ensuring that key decisions are made with a focus on the company’s growth and success. Managers can bring a fresh perspective and expertise to the table, steering the company in the right direction and navigating any challenges that may arise.

Ultimately, the decision to change from a member-managed to a manager-managed structure should be carefully considered and communicated to all members involved. It is important to have open and honest discussions about the reasons for the change and to provide reassurance that the best interests of the company are at the forefront of the decision. By carefully planning and executing the transition, businesses can successfully adapt to a new management structure that positions them for future success and growth.

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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