Key Takeaways:

  • LLC management determines who has authority to make decisions, sign contracts, and oversee operations.
  • Member-managed LLCs give all members direct management authority, while manager-managed LLCs delegate authority to selected managers or outside professionals.
  • The choice between member-managed and manager-managed should reflect the LLC’s size, ownership structure, and member expertise.
  • Operating Agreements are critical for defining roles, voting rights, dispute resolution processes, and succession planning.
  • LLC managing members typically owe fiduciary duties and may be subject to self-employment tax.
  • Compliance responsibilities include maintaining accurate records, filing required reports, and following state laws.

LLC management is similar to that of a corporation, but there are notable differences. When you form an LLC, you have to make a decision on how to manage the company. Owners of an LLC are called members. There could be only one member, which is a single-member LLC, or there can be a multiple-member LLC. Like other business types, an LLC needs at least one person who manages day-to-day operations, like a corporation's board of directors does. 

You should also set up an Operating Agreement that details exactly how the management is to be handled. The Operating Agreement should spell out how members will manage the LLC, how to elect managers, and how managers vote on operational and other aspects of the business. 

You can decide to have all members manage, or hire a professional manager. With small LLCs, member-managed is usually preferred. When you decide to have a manager-managed LLC, you have to then decide whether it will be a group of managing members, or whether you will choose a completely different third-party to run the LLC. Manager-managed is often preferred when some or all the members have no interest in participating in the LLC's management. The other members of a manager-managed LLC are considered passive investors. 

Member-Managed LLCs Versus Manager-Managed LLCs

With member-managed LLCs, all members play an active part, and each one is authorized to be an agent of the company, binding them in contracts. For most states, member-managed is the default status. If you want to go with manager-managed, you need to formally declare it in the Operating Agreement or when you are filing your Articles of Organization. While each member is an agent of the LLC and votes in the decision-making process, contracts and loan agreements need to be agreed upon by a majority of the owners. 

Management is far less rigid than a corporation, as there is no requirement to keep a board of directors or separate management level in an LLC. Before deciding on the management type, it's important to decide on what role everyone plans to play in the future. 

For an LLC that wants to manufacture goods or provide services, you should consider setting up the business as a member-managed LLC. Businesses like retail stores, restaurants, and bakeries are ones that typically choose member-managed. 

Not all businesses are best-suited for member-managed structure, making the manager-managed option a better route. Businesses with a large number of members typically benefit from the manager-managed model. Trying to reach a group consensus with a large number of members can be extremely difficult. By choosing a manager-managed structure, it is more streamlined and operations run more smoothly, even if members cannot get together in one place to vote. 

Manager-managed LLCs can protect themselves from their members who lack the capacity to effectively run the business. This protects the LLC's interests as well as individual investors' money. This can be an ideal structure for family businesses as well when you have children you want to bring in, but not give control to. 

Other benefits of manager-managed LLCs can include: 

  • This helps grow the LLC's assets and profits without the children having to be involved in the management.
  • In some instances, a manager-managed LLC can help with outside perception.
  • Some investors may be worried about all members making important decisions.
  • This gives owners the ability to reassure its investors that all money is in good hands.

Key Factors in Choosing an LLC Management Structure

When deciding between a member-managed or manager-managed LLC, consider:

  • Number of Members – Small LLCs often benefit from member management due to ease of communication, while large LLCs may find decision-making faster with a dedicated manager.
  • Member Expertise – If certain members have business or industry experience, their skills may favor a member-managed model. Conversely, outside managers can bring specialized expertise not available internally.
  • Investor Involvement – Passive investors typically prefer manager-managed structures to protect their investment while limiting operational duties.
  • Geographic Dispersion – When members are in different locations, appointing a manager can streamline decisions.
  • Operational Complexity – Highly regulated or specialized industries may benefit from a professional manager with industry credentials.

Regardless of structure, the Operating Agreement should define:

  • The scope of a manager’s authority.
  • Voting rights and thresholds for major decisions.
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What Is the LLC Managing Member?

Acting managing members are considered agents of the business, which means they have authority to bind the LLC to contracts. This is why you need to clearly document the rights and obligations of LLC managing members in the Operating Agreement.

By default, multiple-member LLCs are treated as a partnership for tax purposes, which means the LLC doesn't pay any income taxes at the business level. Members pay income tax on their share of the profits, known as distributive shares. Laws surrounding self-employment taxes are complex, but managing members should expect to pay self-employment tax as well. Non-managing members are not subject to the self-employment tax. 

It's recommended to consult with a qualified tax consultant when setting up the LLC's Operating Agreement as they can advise tax benefits and drawbacks for both managing and non-managing members. 

Duties and Fiduciary Responsibilities of LLC Managers

LLC managers—whether managing members or outside appointees—owe fiduciary duties to the company and its members. These typically include:

  • Duty of Care – Acting with the prudence and diligence that a reasonably careful person would exercise in similar circumstances.
  • Duty of Loyalty – Putting the LLC’s interests above personal gain, avoiding conflicts of interest.
  • Duty of Good Faith and Fair Dealing – Making decisions honestly and in a manner consistent with the LLC’s Operating Agreement.

Breaching these duties can lead to legal liability. Members can protect themselves and the LLC by:

  • Clearly outlining expectations in the Operating Agreement.
  • Requiring regular reports from managers.
  • Establishing clear procedures for approving major transactions.

LLC Management and Compliance Obligations

Effective LLC management goes beyond operational decisions—it also requires maintaining compliance with state laws and internal governance rules. Common obligations include:

  • Annual or Biennial Filings – Submitting required reports to the Secretary of State.
  • Tax Filings – Ensuring timely federal, state, and local tax submissions.
  • Recordkeeping – Maintaining meeting minutes (if applicable), ownership records, and financial statements.
  • Licensing Requirements – Renewing business or professional licenses.

Failing to meet these obligations can lead to administrative dissolution or loss of good standing, which may affect liability protection.

Transition and Succession in LLC Management

Changes in management—whether due to retirement, death, or removal—should be planned for in advance. The Operating Agreement should address:

  • Procedures for appointing a successor manager.
  • Buyout terms for departing members.
  • Continuity of operations to avoid disruption.

Without clear provisions, state default laws will govern, which may not align with members’ intentions.

Frequently Asked Questions

1. Can an LLC have both members and non-members as managers? Yes. Manager-managed LLCs can appoint either members or outside professionals as managers, depending on the Operating Agreement.

2. Do all states recognize both management structures? Most states do, but some have default rules that apply unless you specify otherwise in your formation documents or Operating Agreement.

3. Can a member-managed LLC switch to manager-managed later? Yes, but you typically must amend the Operating Agreement and, in some states, update your Articles of Organization.

4. Are LLC managers personally liable for company debts? Generally, no—managers have limited liability. However, they may be personally liable for fraud, personal guarantees, or breaches of fiduciary duty.

5. Does a managing member have to pay self-employment tax? In most cases, yes, because they actively participate in running the business. Passive members usually do not pay self-employment tax.

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