LLC Member vs. Manager

When determining whether to have an LLC member vs. manager operate your business, you’ll want to know how each one operates. An LLC, also referred to as a limited liability company, consists of members who are owners of the business. The LLC can be either a single-member LLC or multi-member LLC.

Member-Managed LLC

An LLC can operate as a member-managed LLC, which means that the members (owners) oversee the daily operations of the business. Therefore, all members have a say in the decision-making process. With that being said, a majority of the members must approve on certain decisions, such as contracts and loan agreements. Remember that an LLC does not have officers or boards of directors, which is why a majority of the LLC members must agree upon certain decisions of the LLC in order for them to be binding on the business.

Particularly, for those LLCs making and selling products, or offering services, the member-managed LLC is the best choice for you, so that you can oversee the daily operations of your business, while also having oversight and decision-making authority.

Notably, most states default to member-managed LLCs, which means that if you don’t provide information on a manager, then you and the other members of the LLC will have such decision-making authority. With regard to a single-member LLC, the sole member is often the manager, also r

eferred to as the managing member.

Manager-Managed LLC

If you choose to operate a manager-managed LLC, then you will need to appoint one or more managers to oversee the operations of the business. If this is done, then only the manager will have the decision-making authority to bind the LLC to contracts and other agreements.

The manager can be a member of the LLC. If this is the case, generally 2 members are chosen to be managers. However, if there are only 2 members, then usually these individuals will choose to operate as a member-managed LLC. If, however, the members choose to hire an outside manager, then those members will have no authority to manage the business.

The hired manager can be a person, another LLC, or even a corporation. Be sure to understand your state’s rules, as the state might prevent certain entities from becoming LLC managers.

Reasons to Choose a Manager-Managed LLC

Operating a manager-managed LLC is beneficial for a number of reasons, including the following:

• Passive investors might not have the time to actively manage the LLC.

• Investors in the LLC might not want to have such decision-making authority, as they aren’t familiar with how to operate a business.

• Some LLCs are just too large and complex to have the members actively manage them.

• LLC members might not be able to agree on important decisions regarding the LLC, and therefore, having a manager make these decisions will prevent disagreements between members.

For those members who want to be passive in the business, having a manager manage the business is the best choice for you. Whether it is due to the fact that they might not want to make such decisions, or simply don’t have the time to oversee the operations of the business, it could be beneficial for those in this position. Furthermore, passive members have limited liability as they don’t have much oversight in the business.

Some investors simply don’t have the experience or knowledge to be able to run the business. If this is the case, having an experienced manager oversee the operations of the LLC is the best choice for you.

Another benefit is when the LLC is quite large and complex, which can make it very difficult to share managing responsibilities among all members. Therefore, an outside manager is hired to oversee the daily operations, as well as make decisions regarding the LLC.

Some LLC members might realize when beginning the LLC that they don’t agree on certain issues, whether it be disagreeing on loan agreements, contracts, or other important decisions that will need to be made regarding the LLC. If this is the case, then having a manager take over is the best choice, to prevent future disagreements between members.

If you need help forming your LLC, or if you are unsure whether to operate a manager-managed or member-managed 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.