LLC Management Structures
An LLC can have managers or members. Members actively participate or appoint managers to oversee daily tasks. Choosing managers allows passive members to invest without participating in decisions. This can limit their liability. Remember, if a member handles management work, they should be paid an employee salary, and responsibilities should be documented in agreements.
Member-Managed vs. Manager-Managed
In member-managed LLCs, all members play an active role in decision-making and have managerial discretion, which can be used for investment anonymity. For example, with rental properties, a member-managed LLC is usually established in that state where the properties are located.
However, manager-managed LLCs are suitable when passive investors are involved, or when decision-making with many owners is challenging. In these cases, members appoint one or more managers to handle the company’s daily operations. Managers can be members or non-members and have the authority to act as agents of the company. Contracts and loan agreements, however, must still be approved by a majority of the members.
Choosing Your LLC’s Structure
Before selecting your LLC’s structure, consider your skills and the time you can commit. Most small LLCs opt for member-managed due to the cost of hiring managers and the desire for direct control. Unlike corporations, LLCs do not have oversight boards, and whoever manages the company makes all the decisions.
Member-managed LLCs are common for small businesses with only a few members and limited resources for outside management. Not all members wish to act as managers, in which case an external manager can be employed. Decision-making processes and voting procedures need to be manageable to ensure smooth operations, and manager-managed may be a more favorable option for larger groups.
Decision Factors
Before deciding whether to be a manager or a member, consider the level of involvement and responsibility you want in your LLC, as well as the implications for liability and anonymity.