Member-Managed vs. Manager-Managed LLC
A member-managed structure will work best for some LLCs, while a manager-managed structure may be a better option for others. In a member-managed LLC, all members participate equally in operating the company. In contrast, a manager-managed LLC has members who appoint one or more managers to handle daily operations and decisions. The choice between these structures impacts how control is exercised within the LLC, but it does not affect taxation.
As a member, you have an ownership stake. As a manager, you oversee operations. You can be both a member and a manager within an LLC.
Decision-Making in LLCs
An LLC can have unlimited members. More members can complicate decision-making, potentially making a manager-managed structure more efficient. However, some may prefer a member-managed LLC to retain more control. Most LLCs are by default member-managed unless a manager-managed structure is explicitly chosen in the operating agreement.
Consult an attorney when choosing between a member or manager-managed structure as both impact who makes decisions within the company. All states allow for both single and multiple member LLCs.
When to Consider a Manager-Managed LLC
While the member-managed approach is most common, there are scenarios where hiring a manager might be beneficial. This is particularly true for multi-member LLCs where decision-making can become overly complex. If your LLC has many owners and voting procedures that may hinder operations, a manager-managed approach could be a smarter choice.
In a manager-managed LLC, members may appoint one or more managers who can be members or non-members, possibly referred to as managing members when they are part of the ownership. The key is that not all members need to be managers, and managers can also be hired externally.
Clarifying Roles in an LLC
What is the difference between an authorized member and a manager in an LLC?
Members are the owners of the LLC and participate in the daily operations in a member-managed setup. In a manager-managed LLC, authority is centralized with the designated manager(s). The manager could be a member but does not have to be.
In member-managed LLCs, decisions can be made by consensus among the members. For manager-managed LLCs, the manager or a team of managers assumes the decision-making authority, acting as agents of the company. It is critical to understand these differences when setting up your LLC, as it affects the daily operations and the overall management dynamic.