LLC Difference Between Member and Manager: Everything You Need to Know
The LLC difference between member and manager is the difference between two major parties within a limited liability company.3 min read
LLCs with Members or Managers
The LLC difference between member and manager is the difference between two major parties within a limited liability company. A member is one of the owners of the LLC. There may be one, as in the case of a single-member LLC, or there may be many, as in the case of a multi-member LLC. A manager, on the other hand, is an individual who runs the business for the managers, either when they feel they are not up to the task or when they would like to focus on more big-picture issues and leave the day-to-day business to others. In either event, members and managers hold distinctly separate roles within an LLC, and LLCs run by members or managers operate in distinctly different ways.
Upon forming an LLC, one of the major decisions you will have to make is if you want it to be member-managed or manager-managed. Member-management means the members, or owners of the company, deal with the management of the business, while manager-management means outside managers are brought in to deal with the business’s affairs, although some members may still act as managers, if they so choose.
The most common choice for LLCs is member-management, since most LLCs are small businesses with limited membership and size, and an extra level of management is not necessary or desirable. Additionally, the LLC structure is often chosen by those who like to have direct involvement with their business, and member-management allows them to take a hands-on approach. Therefore, if one desires to interact directly with one’s customers or have a hand in the actual production of a product (such as in a bakery), member-management is the better choice.
Member-management is also the default management set-up in most states if you do not specify how you would like your LLC to be managed in your operating agreement or formation documents.
Although member-management is more common, there are some instances where manager-management may be preferable. These include:
*When members prefer to be passive investors.* Some owners may prefer to not deal with the day-to-day issues of the company. In that case, bringing in an outside manager makes sense.
*When an LLC is too large for members to manage themselves.* If the diversity and complexity of the company is such that managing it would be cumbersome for the owners, managers may be used to ease this burden.
*When the members are not skilled at management.* Some people may have more skills in dealing with big-picture issues than the day-to-day affairs of their company. If such is the case, managers skilled in day-to-day work can be helpful.
*When an LLC is family run.* In a family run manager-managed LLC, parents can bring their children into the business as passive members without yielding control of the company to them. Thus, a family can grow its wealth from the company even if some family members do not have the skill or desire to manage a company.
*When an LLC wishes to attract outside investors.* Some investors may perceive a manager-managed LLC to be more likely to be competently run and thus, more likely to be a stable investment.
Manager management can be an effective way to ensure that a company is being run competently, especially when it is too large to govern otherwise. The managers one chooses for this system can be brought in from outside the company, or they can be members of the company with a managerial skill set.
Management in Single-Member LLCs
Most single-member LLCs are member-managed, but some may be manager-managed. The most common reason for choosing to have a manager-managed LLC is for privacy concerns. In some states, one is required to publicly list in their company’s Articles of Organization who the members or managers of a company are, and in such states you can list yourself as the manager of your single-member LLC and thereby avoid having to directly state that you are the member, or owner, of the LLC. This is not an altogether common consideration, but it is an option that some might find advantageous.
These are just some of the factors you will have to consider when deciding between member-management or manager-management for your LLC. If you need further help understanding the LLC difference between member and manager, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers. 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.