How Many Managing Members Can an LLC Have and How It Works

Key Takeaways

• An LLC can have one or multiple managing members, depending on its needs and structure.
• Managing members oversee daily operations and have fiduciary duties to the LLC.
• LLCs can classify members by voting rights, capital contributions, and management roles.
• Member-managed LLCs are common for smaller businesses where owners want hands-on control.
• Manager-managed LLCs are better for businesses with passive investors or larger operations.

How many managing members can an LLC have? Limited Liability Companies (LLCs) can have as many managing members as they choose, but it's a good idea to lay out exactly who the company managers are and what they are responsible for in the LLC's operating agreement.

Who Are the Members of an LLC?

The owners of Limited Liability Companies are also called members. Members of an LLC are similar to the shareholders of a corporation. The names of these individuals will be included in the company's operating agreement along with the rights afforded to members regarding the business income, management decisions, and the overall direction of the company.

What Are Managing Members?

Managing members are LLC owners who actively participate in running the company’s day-to-day operations. They have the authority to make important decisions, sign contracts, and generally act on behalf of the business. Unlike passive members, managing members owe fiduciary duties to the LLC, including the duties of loyalty and care. These responsibilities require them to prioritize the company’s interests above their personal gains.

While all managing members are members, not all members must be managing members. Passive members may invest capital but choose not to engage in management activities.

Member Classes

Some LLCs will have different classes of members that determine their rights and responsibilities. These classes can offer different levels of rights and profit distributions and are sometimes based on a member's initial contribution to the business. Classes can also determine which members have managing responsibilities versus those who choose to remain less involved in the day-to-day company decisions.

How Member Classes Affect Management

The classification of members can influence how many individuals have management authority. For example:

• Voting vs. Non-Voting Members: Voting members typically have a say in management, while non-voting members do not.
• Managing vs. Passive Members: Managing members oversee daily business functions, while passive members only contribute capital.
• Preferred Members: These members might have priority in profit distributions without any management rights.

Setting up different classes allows LLCs to tailor management control and profit rights based on members’ involvement and investments.

Number of Members

All LLCs are required to have a minimum of one member. Single-member LLCs only have one member and, therefore, have a much simpler operating agreement because only that one individual will have all of the rights, responsibilities, and profit gains.

If an LLC has a large number of members, they can form groups with one representative for each group. Rather than having every member involved in company decisions, the representatives will act on behalf of their groups.

Limits on Managing Members

There is no legal cap on how many managing members an LLC can have. A single-member LLC may have just one managing member, while a multi-member LLC could designate multiple managing members. However, a large number of managing members can complicate decision-making processes, especially if the LLC’s operating agreement does not clearly define each member's authority and responsibilities.

Careful drafting of the operating agreement can mitigate potential conflicts by outlining voting thresholds, decision-making powers, and conflict resolution procedures.

Member-Managed LLC

LLCs are either managed by their members or by a single, sometimes third-party, manager and are called member-managed or manager-managed.

Member-managed LLCs:

• Are the most common management structure for LLCs.
• Don't hire an outside manager.
• Are run by their owners (members).
• Are usually small businesses that don't require third-party management.

Frequently, business owners who want to play a direct role in the management of their company will choose to form an LLC for the member-managed structure.

An LLC is not required to form a board of directors with officers, like a corporation. The members of an LLC have the freedom to choose the business structure that best suits the needs of their company.

Pros and Cons of a Member-Managed Structure

Advantages:

• Simpler and less formal management structure.
• Lower administrative costs.
• Full control retained by members actively engaged in the business.

Disadvantages:

• Can be inefficient for large or complex businesses.
• Risk of conflict among members if decision-making authority isn’t clearly defined.
• Passive investors may be discouraged if they must participate in management.

A member-managed LLC structure is ideal for smaller businesses where owners want to be deeply involved in daily operations.

Why Choose a Member-Managed LLC?

When business owners want to have a hand in the daily tasks of the business, they'll choose a member-managed structure. For instance, if a hair stylist opens their own salon and wants to be able to make his or her own products, serve clients, and hire and manage employee, among other things, they'll want to run a member-managed LLC.

Usually, most states default all LLCs to a member-managed structure unless the business owner specifies otherwise when registering and starting the business. Such specifications should be made in the LLC's operating agreement or formation documents to avoid an unwanted classification. If an LLC has only one member, this will automatically be considered a member-managed LLC and the owner is called the managing member.

Because the member-managed structure is chosen by default, some LLCs won't actually specify their management structure anywhere. However, it is always a good idea to have a well-formulated operating agreement that lays out all of the rights and responsibilities of the company members and managers.

When Multiple Managing Members Make Sense

Having several managing members can be beneficial when:

• The LLC’s activities span diverse areas that require specialized management expertise.
• The business requires frequent, high-level operational decisions that benefit from shared oversight.
• The members prefer a collaborative management style rather than centralized authority.

In these cases, an LLC can establish clear roles and duties among managing members to ensure efficient governance.

LLC Operating Agreement

The following specifications should be included in an LLC Operating Agreement:

• Voting rights of members
• Member capital contributions
• Provisions for buy-outs
• Names of managing members
• Types of members and their corresponding rights and responsibilities (if the LLC has different classes)

If a company runs into any legal or management issues down the road but doesn't have an operating agreement, they could have a very difficult time solving problems and coming to any resolutions.

Addressing Multiple Managing Members in the Operating Agreement

When an LLC designates multiple managing members, the operating agreement should specify:

• Management authority: Outline who can make binding decisions individually and which decisions require a majority or unanimous consent.
• Voting mechanisms: Define voting rights and thresholds (e.g., simple majority, supermajority) for major actions.
• Removal and replacement: Describe procedures for removing managing members and appointing new ones.
• Delegation of tasks: Clarify any individual or shared responsibilities among managing members.

Having a detailed operating agreement helps prevent internal disputes and provides a roadmap for handling management transitions.

Manager-Managed LLC

When LLCs have multiple members, the business owners usually choose to name one individual as the company manager in order to keep daily operations simpler and more streamlined. Many LLCs have investors who have no desire to be a part of management, but want to remain only financially involved. In this case, those members wouldn't want to be managing members, so you wouldn't want a member-managed LLC structure.

A manager-managed LLC can either:

• Have an internal manager, who is an owner of the company that also acts as the manager.
• Have an external manager, who is a third-party individual that manages the business but is not an owner or member.

Choosing Between a Single Manager or Multiple Managers

In a manager-managed LLC, members can appoint either:

• One manager: Centralizes authority, ideal for efficiency and quick decision-making.
• Multiple managers: Spreads responsibility, useful for larger businesses or operations requiring varied expertise.

Managers do not have to be LLC members; however, if members also serve as managers, they have the dual role of ownership and management. When multiple managers are appointed, an LLC should define each manager’s scope of authority clearly in the operating agreement to avoid overlap and confusion.

Frequently Asked Questions

1. How many managing members can an LLC have?
   An LLC can have as many managing members as it wants; there is no legal limit.
2. What are the duties of a managing member?
   Managing members oversee daily operations and have fiduciary duties to act in the LLC’s best interest.
3. Can a non-member manage an LLC?
   Yes, in a manager-managed LLC, a non-member can be appointed as the manager.
4. What happens if managing members disagree?
   The LLC operating agreement should include provisions for resolving disagreements among managing members, such as voting thresholds or mediation.
5. Do all members have to be managing members?
   No. Some members can remain passive investors without any management responsibilities.

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