In member-managed LLCs, members actively participate in operations and decision-making. In manager-managed LLCs, members appoint managers to run operations. Most say member-managed is better in most cases. However, the management structure can be changed by amending organizing documents, usually needing a member vote.
A manager-managed LLC is when designated people called managers run operations. Typically, the owners (Members) cannot take part in running the business and day-to-day operations. While the Members initially vote-in the Manager(s) (and can remove them), after that, the Members take a passive role and let the Manager(s) run the business.
Considerations for Choosing a Management Structure
In a manager-managed LLC, non-members are hired as managers. Some members may still be managers alongside non-members, or no members are managers. Here, non-managing members have passive ownership. This structure is preferable when owners want passive ownership, if there are many members, or if members lack management skills.
Having managers streamlines daily decision-making without needing member votes. However, this structure requires more documentation and funds for a professional manager’s salary.
Member-Managed vs. Manager-Managed
What is the difference between manager-managed and member-managed?
In a member-managed LLC, all members participate in operations and decision-making while in a manager-managed LLC, elected managers make decisions.
When starting an LLC, choose between a member-managed or manager-managed structure. It is important to understand the differences between these structures to select the right one for your business.
What are the tax implications for member-managed vs manager-managed?
The tax implications for member-managed and manager-managed LLCs generally do not differ as both are typically treated as pass-through entities for tax purposes, meaning that income is reported on the personal tax returns of the owners. However, depending on the level of involvement and how payments to managers are structured, there could be different considerations for self-employment taxes and payroll taxes. It’s advisable to consult with a tax professional to understand the specific implications for your particular LLC.