Member-Managed vs Manager-Managed LLCs

When you form your LLC, you need to decide how to structure it before you draft the operating agreement for your company. An LLC operating agreement may designate which managers handle operations, or if the operations are shared between all members.

Your LLC operating agreement must clearly establish the responsibilities of each member. It must be clear and not allow mistakes which can affect the running of the business. Hire a corporate lawyer from Nakase Wade to help ensure your LLC operating agreement is sound.

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Member-Managed vs Manager-Managed LLCs

If an LLC is member-managed, it means that all members of an LLC play a part in the business operations. All members have authority proportional to their business share, and they need to be much more active in the operations. If an LLC is manager-managed, then a board of directors or a small number of members run business operations. The members of a business can be passive investors.

Benefits of Member-Managed LLCs

A member-managed LLC is the most common type, especially for startups and small businesses. This way, each member can lend their voice and expertise to the business operations.

Benefits of a Manager-Managed LLCs

A manager-manged LLC is not as common, but there can be advantages to running your business as a corporation. In these types of LLCs, the owners will vote on issues instead of actively operating the business. These are particularly useful in these situations:

  • Large Size – if your company is large or has many owners, then too many voices can stop decisions from being made or action from being taken. A manager-managed LLC can make effective decisions and respond quickly to any issues.

  • Desired Anonymity – In a member-managed LLC, all members must be named in the operating agreements, therefore becoming public. Manager-managed LLCs allow the members anonymity.

  • Passive Ownership – Some members may not want to be hands-on in the business; therefore, a manager-managed LLC will allow the members to appoint a board to manage the company’s affairs.

The Role of Operating Agreements

An operating agreement is vital to the smooth operating of an LLC because they define the roles of all members and managers. They will define the amount of control each person has and the type of management structure that the LLC will use. Failing to create an operating agreement will leave your business and members open to liabilities and give control to the members who may not want it.