LLC Board of Managers: Roles, Structure, and Duties

Key Takeaways

• A Board of Managers is responsible for overseeing and managing the operations of an LLC, similar to a board of directors in a corporation.
• Managers may be members of the LLC or external appointees, depending on whether the LLC is member-managed or manager-managed.
• The Board of Managers' authority, structure, and decision-making processes should be clearly defined in the LLC Operating Agreement.
• Boards can appoint officers to handle daily operations and may form committees for specific tasks such as audit or compensation.
• The Board of Managers is distinct from day-to-day management roles, focusing instead on governance, strategic oversight, and policy decisions.

LLC Board of Managers

LLC Board of Managers are those managers who are in charge of the daily operations of an LLC. There are a few ways in which you can choose to manage your LLC. An LLC is owned by one or more members. There can also be more than one class of members, with each class having different rights. For example, some members might have more responsibility in terms of decision-making than other members. Some additional examples of membership in an LLC include:

• 2 or more family members owning a family business

• 2 or more unrelated parties entering into a joint venture

• A single-member LLC in which one person has complete management control over the LLC

• A multi-member LLC in which one or more members are chosen to manage the LLC (member-managed LLC)

• A multi-member LLC in which an outside manager is chosen to manage the LLC (manager-managed LLC)

Keep in mind that all member and manager decisions should be detailed in the LLC operating agreement. This agreement is a legally binding agreement that can be used throughout the LLC’s lifetime, particularly if the LLC should face any potential legal disputes among members, or involving third parties.

What Is a Board of Managers in an LLC?

The board of managers is the governing body of an LLC, responsible for key decision-making, strategic direction, and oversight. Similar to a board of directors in a corporation, the board of managers may consist of LLC members or outside individuals appointed for their expertise. Their main responsibilities often include setting company policies, approving significant transactions, and appointing officers to handle day-to-day operations.

The composition, powers, and responsibilities of the board are typically outlined in the LLC's operating agreement. Depending on the LLC's structure, the board may operate with varying levels of authority, from full operational control to limited advisory roles.

Member vs. Manager-Managed LLC

As previously noted, the owners of an LLC are referred to as members. An LLC can be formed with one member or multiple members. The default provisions of state LLC laws generally indicate that the members will act as the managers in the LLC, and will have the decision-making powers equally. Furthermore, state laws also provide that each member will hold equal rights to the LLC. Therefore, if you want certain members to have more ownership percentage than others, this must be laid out in the operating agreement.

If operating a multi-member LLC, the members can designate one or more members to operate as the managers of the LLC. Such information should be identified in the Articles of Organization as well as the Operating Agreement. Be mindful that not all states require that you submit an Operating Agreement, but the Articles of Organization is a requirement in most states.

Since LLC laws offer greater flexibility than other types of business structures, your LLC can designate certain members with different responsibilities, meaning that one member might have responsibility over employee oversight, whereas another member might have responsibility for entering into loan agreements. Such responsibility will need to be agreed upon (majority vote) by the LLC members. You can give members titles such as Vice President or Treasurer to help differentiate their duties. In this sense, the LLC is somewhat operating as a corporation by having such titles for different members.

Another item of consideration for managing your LLC is to have a Board of Directors or Board of Managers. The Board can then appoint officers, who are generally non-members that help oversee the daily operations of the LLC. If hiring non-members to act as officers/managers, you should remember that these individuals must sign certain documents to prevent future disputes.

Duties and Powers of the Board of Managers

The board of managers holds a fiduciary duty to act in the best interests of the LLC and its members. Common powers and duties may include:

• Establishing the company’s mission, vision, and strategic goals
• Overseeing the appointment and performance of officers or executive managers
• Approving major financial decisions, such as capital expenditures and debt issuance
• Creating and monitoring compliance with internal policies and procedures
• Managing risk, including legal and regulatory compliance
• Reviewing and approving annual budgets and financial reports
• Making decisions regarding member disputes, buyouts, or dissolution

Fiduciary duties generally fall into two key categories:

1. Duty of Care: Requiring informed and prudent decision-making.
2. Duty of Loyalty: Prohibiting self-dealing and requiring actions in the LLC’s best interest.

Operating Agreement

As of December 2010, only 2 states require an LLC to have an operating agreement – Missouri and New York. However, it is very important, particularly for multi-member LLCs, to draft this agreement. Specifically, the operating agreement can be used in potential legal disputes that your LLC might face at some point during its lifetime. Furthermore, a financial lender might require proof of an operating agreement prior to entering into a loan agreement. Similarly, a lender or government agency might require proof of authority to act on the LLC’s behalf.

There are many items that can be included in the operating agreement, including, but not limited to:

• How the sale of property will be handled

• Financing decisions

• Capital budgeting

• Capital expenditures

• Decisions regarding bankruptcy of the LLC

• The process of a member selling his or her interest in the LLC

• Adding a new member to the LLC

• What happens if a member goes bankrupt or dies

Board of Managers vs. Day-to-Day Management

It is important to distinguish the board of managers from the LLC’s operational management. The board typically provides oversight and strategic guidance, while officers or designated managers handle daily operations.

Key differences include:

This separation of roles helps balance oversight with operational efficiency, especially in larger or more complex LLC structures.

Establishing a Board of Managers Through the Operating Agreement

The operating agreement serves as the foundational document that governs the powers and structure of the board of managers. To avoid ambiguity and potential disputes, the agreement should specify:

• How managers are appointed or removed
• Voting rights and decision-making procedures
• The scope of the board’s authority versus that of individual managers or officers
• Terms of service for board members
• Processes for resolving deadlocks or disagreements among managers
• Compensation policies for board members (if applicable)
• Whether the board may create subcommittees (e.g., audit committee, compensation committee)

Clearly defining these elements helps maintain smooth governance and protects the LLC from internal conflicts or legal challenges.

Frequently Asked Questions

1. What is the difference between a board of managers and a board of directors?
   While both boards serve governance roles, a board of managers governs an LLC, whereas a board of directors governs a corporation. The legal structure of the business determines which term applies.
2. Are members of an LLC automatically part of the board of managers?
   Not necessarily. In a member-managed LLC, members typically serve as managers. In a manager-managed LLC, members may appoint managers (who may or may not be members) to handle governance.
3. Can an LLC have both a board of managers and officers?
   Yes. The board of managers may appoint officers such as a President, Treasurer, or Secretary to handle the LLC's daily operations, similar to a corporate structure.
4. How are board of managers decisions made?
   Decision-making processes, including voting rights and quorum requirements, should be outlined in the LLC’s operating agreement. Some decisions may require a majority or supermajority vote.
5. Do all states recognize the concept of a board of managers in an LLC?
   While many states allow for flexibility in LLC governance, not all explicitly reference the term "board of managers." However, LLCs can generally establish such a board through their operating agreement, regardless of state terminology.

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