Key Takeaways

  • The main difference between managers and members of an LLC is that members are the owners of the company, while managers are appointed to handle daily operations.
  • LLCs can be member-managed (owners run the business) or manager-managed (designated managers run the business).
  • Member-managed LLCs are common for small businesses and those where owners want hands-on involvement.
  • Manager-managed LLCs are often chosen for larger, more complex businesses, or when owners prefer a passive investment role.
  • Management structure must be defined in the LLC’s operating agreement and may affect decision-making authority, liability exposure, and public records.
  • Single-member LLCs can choose manager management for privacy, delegation, or operational efficiency.

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.

Key Legal Distinctions Between Members and Managers

While both members and managers play critical roles in an LLC, their legal rights and responsibilities differ significantly:

  • Ownership vs. Management: Members own equity in the LLC and typically share in its profits and losses. Managers oversee the company’s daily operations, regardless of whether they own equity.
  • Fiduciary Duties: Managers owe fiduciary duties—such as loyalty, care, and acting in good faith—toward the LLC and its members. Members in a member-managed LLC also owe these duties.
  • Authority: In a member-managed LLC, each member usually has authority to bind the company in contracts. In a manager-managed LLC, only managers (or designated officers) have this authority.
  • Decision-Making Power: Major company decisions, like amending the operating agreement or dissolving the LLC, generally require member approval, even in manager-managed structures.
  • Compensation: Members typically receive profit distributions based on ownership percentage, while managers may receive a salary or management fee in addition to any ownership-based distributions.

Member-Managed LLCs

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.

When Member Management Works Best

A member-managed LLC is often ideal when:

  1. All owners want active involvement – Each member participates in day-to-day operations.
  2. The business is small or closely held – Decision-making is more streamlined when owners run the company directly.
  3. Owner expertise is central to success – For example, professional service firms (design, consulting, law, etc.) benefit from direct owner control.
  4. Low administrative complexity is preferred – Member-managed LLCs require fewer formalities since no separate management tier is needed.

In most states, member management is the default arrangement unless otherwise stated in the Articles of Organization or operating agreement.

Manager-Managed LLCs

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.

When Manager Management Is the Better Choice

Manager-managed LLCs are particularly beneficial in these situations:

  • Passive Investors: Owners who fund the LLC but prefer not to handle day-to-day tasks can appoint skilled managers.
  • Multiple Owners With Diverse Interests: Managers help streamline decisions when members disagree or have different expertise.
  • Rapid Growth or Complexity: Large-scale operations often require professional management to handle increased operational demands.
  • Attracting Capital: Investors may be more confident when seasoned managers are in charge.
  • Family-Owned Enterprises: Allows for generational wealth-building without requiring all family members to manage the business.

Tip: If you choose a manager-managed LLC, clearly define in your operating agreement the managers’ powers, term limits, and removal process to prevent disputes.

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.

Privacy and Liability Considerations

Choosing manager management in a single-member LLC can offer:

  • Privacy Protection: In states where public records list LLC members, designating yourself as a manager may help keep ownership details private.
  • Operational Continuity: If you hire an outside manager, the LLC can continue operations smoothly during your absence.
  • Reduced Personal Involvement: Delegating daily responsibilities allows you to focus on strategic planning or other ventures.

However, even if you appoint a manager, as the sole member you retain ultimate control over major company decisions.

Frequently Asked Questions

  1. Can someone be both a member and a manager in an LLC?
    Yes. A person can own part of the LLC (member) and also manage daily operations (manager).
  2. Who has the final say in a manager-managed LLC?
    Managers handle daily operations, but major business decisions generally require member approval.
  3. Is a manager in an LLC the same as a corporate officer?
    Not necessarily. While both manage operations, LLC managers’ powers come from the operating agreement, not corporate bylaws.
  4. Do managers have ownership in the LLC?
    Not automatically. Managers may or may not be members, depending on the LLC’s structure.
  5. How is profit distributed in a manager-managed LLC?
    Members receive distributions based on ownership interest. Managers may receive additional compensation as outlined in the operating agreement.

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.