1. LLC Board of Managers
2. Member vs. Manager-Managed LLC
3. Operating Agreement

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.

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.

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

If you need help learning more about the role of the Board of Managers in an LLC, 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.