Key Takeaways

  • LLCs are not legally required to have a board of directors, but they may choose to create a similar advisory structure.
  • Management structures vary: member-managed, manager-managed, and optionally, a board of managers or advisors.
  • A board of advisors can offer strategic oversight without the formality of a corporate board.
  • Including governance details in the operating agreement is critical for clarity and liability protection.
  • Using a board-like structure can appeal to investors or help prepare an LLC for future conversion to a corporation.

An LLC Board of Directors is not required by law — however, a limited liability company should consider the advantages of having a board of advisors that functions the same as a board of directors. A board of directors is a group of people elected to represent stockholders and govern business activities such as establishing company policies for management and making critical business decisions.

Limited Liability Company

A limited liability company is the most popular business structure, recognized in every state, combining characteristics of a partnership and a corporation. An LLC is separate from its owners, which provides liability insurance. The owners of an LLC, called members, are not held personally liable for the company's liabilities or debts. In addition to liability protection, LLCs are popular for their simple business structure, which has fewer bookkeeping and tax filing requirements.

Advantages of an LLC

  • Liability protection.
  • Easy to form.
  • Flexible management style.
  • Foreign ownership and tax flexibility.

For federal tax purposes, the IRS considers a limited liability company to be either a partnership, corporation, or an entity disregarded (also called a single-member LLC). To be considered an entity disregarded, the company is owned by only one person. A single-member LLC does not have personal liability protection for its owner; in contrast, they are taxed on company profits.

Unlike corporations, a limited liability company is not required by law to have a board of directors, but are free to do so if they choose. In a corporate structure, stockholders appoint board members, who act as representatives for the stockholders. This kind of management is known as centralized management. It is highly advised that an LLC consider the advantages of having a board of advisors to govern the business and protect its shareholders. Similar to a board of directors, an LLC may have managing members.

What a Board of Directors Means for an LLC

While corporations are legally required to have a board of directors, LLCs are not. However, LLCs can voluntarily adopt a similar structure through a “board of managers” or a “board of advisors.” This flexibility allows LLCs to maintain informal governance while benefiting from oversight, especially in larger or investor-driven businesses. In this context, the term "board of directors" is often used informally to describe a group of individuals who help guide the company but do not have the same statutory duties as directors in a corporation.

Member-Managed vs. Manager-Managed

An LLC is either managed by a single designated manager or board of managers or by its member. An LLC's management style is declared in the company's Certificate of Organization or Articles of Organization. As part of the business formation, this process outlines who will run its day-to-day operations. Both management styles can delegate power and authority to the company's officers.

Member-Managed:

  • Default management style.
  • Can consist of one or more of the company's owners.
  • Each member has equal rights to management.
  • Managed directly by its owners.
    • The best option for companies that produce and sell goods or provide services.
  • Does not include a Board of Managers.
  • A majority of the owners must agree on certain decisions for the issue at hand to be accepted by the company.

Manager-Managed:

  • Only the managers, members or nonmembers, have the authority to bind agreements and contracts.
  • Managers who are members of the LLC function the same as a member-managed LLC.
  • Managers that are not owners of the LLC acquire control of the business and have authority over the owners.
  • Responsibility is based on their ownership in the company.
  • The Board of Managers governs management.
  • Can have one individual or unlimited members.

A manager-managed system is most suitable for:

  • Larger companies.
  • Investors that do not want to play an active role in the business.

Board of Managers or Advisors in an LLC

LLCs that want strategic oversight without incorporating can establish a board of managers or a board of advisors. Here’s how these differ:

  • Board of Managers: A formal internal governance structure typically found in manager-managed LLCs. Managers may be members or outsiders who oversee operations.
  • Board of Advisors: An informal group of trusted professionals who offer guidance. Unlike a corporate board, advisors do not have binding authority or fiduciary duties.

Advantages of using a board structure in an LLC include:

  • Better strategic planning
  • Investor confidence
  • Clear separation of roles and duties
  • Scalable governance as the business grows

Disadvantages may include:

  • Added complexity
  • Slower decision-making if too formal
  • Potential confusion with corporate governance models

Operating Agreement

Operating agreements are confidential documents that describe the company's ownership and management style, and members' rights and obligations. An operating agreement is not a mandatory document, except for in two states (New York and Missouri). Though not required, it is highly recommended that an LLC with many owners have an operating agreement in order to avoid conflict or confusion. An operating agreement will:

  • Act as proof of authority for investors or government agencies.
  • Clearly explain the process in which a manager is replaced.

Documenting Governance in the Operating Agreement

If an LLC chooses to include a board of managers or advisors, it should be clearly outlined in the operating agreement. The agreement should address:

  • How members or managers are appointed and removed
  • Scope of authority for the board or advisory group
  • Voting rights and quorum requirements
  • Meeting frequency and procedures

This documentation helps avoid confusion and reduces liability. While state laws give LLCs great flexibility, clearly defined governance protects the business and its members.

Frequently Asked Questions

1. Does an LLC have a board of directors like a corporation? No, LLCs are not required to have a board of directors, but they may establish a similar structure, such as a board of managers or advisors, if desired.

2. What’s the difference between a board of managers and a board of advisors? A board of managers has operational authority and is more formal, while a board of advisors offers strategic guidance without binding authority.

3. Can an LLC create a board of directors? Yes, informally. While the term "board of directors" is not typically used for LLCs, they can create a similar body and define its role in the operating agreement.

4. Is a board necessary in a single-member LLC? No. A single-member LLC usually does not need a board unless it seeks outside input or is preparing for structural growth or a future corporate conversion.

5. Should I include board details in the operating agreement? Yes. Any board or advisory structure should be documented in the operating agreement to clarify roles, reduce liability, and establish clear procedures.

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