How Many Managing Members Can an LLC Have: Everything You Need to Know
LLC can have many members but it's a good idea to lay out exactly who the company managers and what they are responsible for operating agreement. 4 min read
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.
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.
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.
LLCs are either managed by their members or by a single, sometimes third-party, manager and are called member-managed or manager-managed.
- 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.
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.
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.
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.
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