Is It Better to Be a Member or a Manager of an LLC? Understanding LLC Management Structures

Member-Managed vs. Manager-Managed LLCs

In a member-managed LLC, all members participate equally in operating the company and are considered agents with a vote in business decisions. In contrast, a manager-managed LLC involves members appointing one or more managers to handle daily operations and decisions. These managers may be members or could be outside hires with no ownership stake.

Member-managed LLCs typically suit situations where all the owners wish to be actively involved in the management of the company and have the skills and time to do so. They also allow for investment anonymity and might be preferable for smaller companies where hiring managers would be too costly.

Manager-managed LLCs are often chosen when there are passive investors involved or when it is too challenging to make decisions with many owners. This structure permits the appointment of non-members as managers, which can limit the owners’ liability and allows members to remain investors without participating in day-to-day decisions.

Key Differences and Considerations

Both management structures impact control within the LLC but not the taxation. When selecting a structure, it’s essential to consider your skills, time, and the level of control or participation you desire in your business’s daily operations.

One critical decision is whether members will take an active role in management or if a manager or managers with expertise will be hired to oversee operations. Managers have a legal duty to act in the best interests of the LLC, and they are responsible for significant tasks, including banking, hiring, entering contracts, and taking loans.

Members who manage are not considered employees, but they can be paid a salary for management work—this should be documented along with their responsibilities.

Conclusion

Selecting the right management structure is a serious decision with implications for liability, investor roles, and operational control. It is often beneficial to consult with an LLC formation expert to determine the most suitable structure for your business needs.