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.

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.

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.

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.

If you need help with changing an LLC from member managed to manager-managed, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.