Key Takeaways

  • LLCs in Texas can switch from member-managed to manager-managed by amending their certificate of formation and updating the operating agreement.
  • Member-managed LLCs offer equal decision-making rights to all members, making them ideal for small, collaborative businesses.
  • Manager-managed LLCs provide centralized authority and are better suited for companies with passive investors or complex operations.
  • Texas law allows considerable flexibility, but formal documentation is essential for legal clarity and liability protection.
  • Carefully consider voting requirements and operating agreement terms when changing management structures.

Can you change LLC from member managed to manager managed? An LLC is a single legal business created under state jurisdiction. All LLC businesses have at least one member, but an LLC can also have unlimited members. Each member has a percentage interest that is represented in ownership similar to shares in corporations. Members usually manage the LLC and non-member managers don't own the LLC but are chosen by employees and members of the LLC.

If there are a few members who want to be active in the LLC, then a member-managed structure is the best option. However, if the LLC has dozens of members, then it gets harder to have each member involved in decision making. If there are owners who don't want to be involved in the day to day business but will provide the money to run it, then the members can choose outside managers.

Articles of Organization

When you file the articles of organization for your LLC in the state registration office or secretary of state, there's a filing fee you have to pay and the LLC is created. This document goes over the basic structure of the LLC such as the name, address, and purpose of the business. The LLC has to decide on member or manager managed when you file the articles of organization.

Members can appoint managers at any time. Whether it's manager or member managed, the selection can be changed by amending the articles of organization. Changes to articles usually need a vote to change them, and state law can require unanimous decision. An additional provision or provisions can be included in the operation agreement of your LLC to give more details on the operations of the LLC.

Amending the Certificate of Formation

To change your Texas LLC from member-managed to manager-managed, you must file a Certificate of Amendment (Form 424) with the Texas Secretary of State. This amendment must explicitly update the management structure as stated in the original Certificate of Formation. The form can be submitted online through SOSDirect or by mail, and a filing fee applies.

In addition to filing the amendment, you should revise your LLC's operating agreement to reflect the new roles and responsibilities of managers and members. It's also advisable to update any contracts, bank accounts, and internal policies to match the new structure. This transition helps protect against liability and ensures third parties recognize the new management authority.

Member-Managed LLC

  • When you file the articles of organization to create an LLC, states want a list of names of the members.
  • Each member has ownership rights and this percentage is usually listed in the operating agreement.
  • A general partnership and member-managed LLC are similar as members make management decisions for the LLC and go through voting towards this decision.
  • A member-managed LLC is easy to create as there are no requirements to hire managers and members are the decision-makers. This structure is beneficial for small businesses.

Pros and Cons of Member-Managed LLCs in Texas

Pros:

  • Equal say in decision-making for all members
  • Fewer formalities and administrative tasks
  • Transparent operations among a small group

Cons:

  • Can be inefficient for large or passive-member LLCs
  • Potential for disagreements if many members are involved
  • May deter investors who prefer not to manage day-to-day affairs

Texas law allows all members to act on behalf of the LLC unless the operating agreement limits these powers. This default authority can create complications if expectations are not clearly defined in writing.

Manager Managed LLC

  • An LLC that's manager managed is similar to a limited partnership where the managers operate the business and members act as investors.
  • Members choose who will run the business. LLC managers can also be members but it's not necessary.
  • Large businesses usually have many managers who have specific duties over a certain department.
  • Smaller businesses may choose to have only one manager.
  • LLC members have the right to replace managers; the operating agreement should have information about the rights of members to hire and fire their managers.
  • When there are many employees and departments, it's beneficial to have a manager-managed structure. There can be a fluidness when there are many managers between departments to lead employees.
  • A manager-managed LLC is more complicated than a member-managed LLC.

Benefits of Manager-Managed LLCs in Texas

Advantages:

  • Suitable for LLCs with many members or outside investors
  • Centralized decision-making leads to more efficient operations
  • Allows passive investors to separate ownership from management

Under the Texas Business Organizations Code, a manager-managed LLC must clearly designate managers in its formation documents. Managers are fiduciaries and owe duties of care and loyalty to the LLC and its members.

This structure is often chosen when members want to remain passive investors or when outside managers with specialized expertise are appointed to run the business.

Member Managed vs. Manager Managed

It's better to think about which business structure you want in the beginning rather than amend your filings at a later date. Depending on the authority level you want for the LLC members, you can decide if you want a manager or member-managed LLC.

Member managed LLCs give each member control over it. Even if their powers are limited thanks to the operating agreements, members do have the power to act for the LLC. They are permitted to sign checks, execute agreements, and anything a top executive can do. In the operating agreement, there should be specifications as to how the members can act; for example, stating where there needs to be a majority vote before actions can be done.

An LLC that is manager-managed limits the authority of the board of managers. This is a structure to choose if your LLC has partners who don't want to be part of the decision-making but want to be investors. The governance is more flexible since members can elect the board of directors.

Texas Considerations When Choosing or Changing Structures

When evaluating "member managed vs manager managed LLC Texas" structures, consider the following:

  • Liability: Misrepresenting who can bind the LLC may expose members to legal risks. Always notify banks and clients of the change in management.
  • Voting Rights: If your LLC uses weighted votes based on ownership percentages, update this provision in the operating agreement when changing structures.
  • Transparency: Ensure roles and duties are clearly defined. Texas courts will refer to your operating agreement to resolve disputes.
  • Third Parties: Make sure all external stakeholders—like vendors, clients, and financial institutions—are informed of the change to avoid confusion.

Changing structures can have tax and operational implications, so consult a business attorney before making formal updates.

Frequently Asked Questions

1. Can a Texas LLC switch from member-managed to manager-managed? Yes. You must file a Certificate of Amendment with the Texas Secretary of State and update your operating agreement accordingly.

2. What is the main difference between member-managed and manager-managed LLCs in Texas? In member-managed LLCs, all members manage the business. In manager-managed LLCs, management is delegated to appointed managers who may or may not be members.

3. Do I need unanimous consent to change my LLC’s structure? It depends on your operating agreement. In the absence of specific provisions, Texas law generally requires majority or unanimous consent to amend the formation documents.

4. Will switching to a manager-managed LLC affect my liability? It may reduce confusion over who has authority to act on behalf of the LLC, which helps minimize the risk of unauthorized actions—but all fiduciaries still owe duties to the LLC.

5. Is a manager-managed LLC better for attracting investors? Yes. Investors often prefer this structure because it allows them to contribute capital without getting involved in daily operations.

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