The difference between member-managed and manager-managed LLCs is that in the former, all members can bind the LLC to contracts and participate in the day-to-day operations and decision-making. While in a manager-managed LLC, these powers are reserved exclusively for an elected manager or managers.
Manager-Managed LLC Explained
A Manager-managed LLC is when one, or a few designated people (called Managers), have the ability to bind the LLC in contracts and agreements, as well as run the business and day-to-day operations. Typically, the owners (Members) cannot bind the LLC in contracts and agreements, and they can’t take part in running the business and day-to-day operations.
Choosing the Management Structure
The tricky part is that you must decide whether your LLC will be manager-managed or member-managed at the outset and specify your choice in the certificate of formation, the operating agreement, and, in some cases, the articles of organization.
- A member-managed LLC provides collective control over company decisions.
- In a manager-managed LLC, management authority rests exclusively with professional managers or elected members.
- Manager: An LLC manager is an individual, group, or entity chosen by LLC members to manage the day-to-day operation of the company.
- Member-Management: The Default Management System. In a member-managed LLC, all members play an active role in the day-to-day operations of the business.
Manager-managed LLCs delegate authority to the manager or managers, who become agents of the company. The authority to enter into binding contracts and make business decisions exclusively rests with the manager or managers.
To change the management structure, follow the agreement rules and amend articles. Adding a member involves amending the agreement and bringing in the new member. Most states require unanimous approval for such changes.