Key Takeaways

  • Member-managed LLCs give all owners equal authority to run daily operations and make decisions.
  • Manager-managed LLCs delegate control to appointed managers, allowing for passive investors or outside expertise.
  • Choosing between member-managed vs manager-managed depends on your LLC's size, structure, goals, and member involvement.
  • Member-managed is best for small, hands-on businesses; manager-managed is ideal for larger LLCs or those with passive members.
  • The choice must be reflected in your Articles of Organization and detailed in your Operating Agreement.

Understanding the difference between LLC manager vs member is critical when setting up an LLC.  An LLC is a relatively newer business organization option, and it has some similarities in management style to corporations, but it's still inherently different. There are some important things to understand about an LLC before you understand what role each person plays in the company: 

  • Anyone who is an LLC member is an owner. Owners can have any percentage of the company.
  • All states recognize single-member LLCs, as well as multiple member LLCs.
  • There is no cap on how many members an LLC can have.

Management of an LLC 

Owners of an LLC are called members. You can have one member, which is a single-member LLC, or multiple members, which is a multiple-member LLC. LLCs must have at least one person who manages the company, similar to what a board of directors does in a corporation. You can opt to have it be managed by its members, or you can hire an outside person or team to manage it instead. 

Essentially, with member-managed LLCs, all members participate in the day-to-day operations and management. With a manager-managed LLC, only designated member(s) or non-member(s) have the authority to run the business. Other members are considered passive investors and are not involved with day-to-day operations. 

When defining what management means in this context, details are often covered in the Operating Agreement. In general, it usually is the ability to enter into contracts on the LLC's behalf and participate in business decisions that take place. 

Other tasks managers can do include:      

  • Open and close a bank account     
  • Make legal and financial decisions

It doesn't matter who is managing, but that person has a fiduciary, or legal, duty to always act in the LLC's best interests. 

Key Responsibilities and Decision-Making Authority

The distinction between member-managed vs manager-managed LLCs centers on who has the authority to make day-to-day and high-level decisions. In a member-managed LLC, each member can:

  • Sign contracts
  • Hire and fire employees
  • Manage inventory or operations
  • Open and manage bank accounts
  • Make business development decisions

This structure works best when all members are actively involved and have complementary skills. However, decision-making can slow down if there are many members or if disagreements arise.

In contrast, a manager-managed LLC streamlines control by centralizing authority. Managers (who may or may not be members) take on operational duties, while other members act more like shareholders. These managers can:

  • Execute high-level strategies
  • Control hiring, marketing, and budgeting
  • Represent the LLC legally and financially
  • Manage investor relations or stakeholder communications

This structure is beneficial when some members prefer to be passive investors or lack the expertise or interest to manage operations directly.

Member-Managed Versus Manager-Managed LLCs

Members have equal say with a member-managed LLC. Each person has a vote and a say in how decisions are made. With a manager-managed LLC, the important decisions are left to designated members or non-members who are called managers. The remainder of members are considered passive investors and have no say in any business decisions. 

The main difference between manager and member managed is the ability to have passive investors with manager-managed LLCs. Because, with a member-managed business, all owners have a say. 

Members must have a more hands-on role in a member-managed LLC. Member-managed is the more popular option when people are setting up their LLC. This is because most LLCs tend to be small businesses who only have limited resources and therefore don't have a need, or the funds, for an outside management level. 

To understand the differences, if you want to run your own LLC and make products, take orders, hire any employees, etc., you will need to choose a member-managed LLC. Another example would be a restaurant or bakery where you want to develop recipes, bake your own treats, hire new employees, and open and close the shop. 

There are some scenarios where manager-managed may be preferable. The main example is when some members want to be passive investors. Other scenarios may be when your LLC is too big with too many members and it would be easier to delegate to a smaller team, or some members do not have the necessary skills for management. 

Manager-managed LLCs can also be more streamlined, as owners can ensure the competency of the management team in place. To choose member-management, you don't need to formally declare this option, but it's wise to disclose it on the Articles of Organization you file.

Pros and Cons of Member-Managed vs Manager-Managed LLCs

Both LLC management structures offer flexibility, but the right choice depends on how involved owners want to be and the LLC’s long-term vision.

Pros of Member-Managed LLCs:

  • Simple and cost-effective setup
  • Direct involvement from all owners
  • Encourages collaborative decision-making
  • No need to hire external management

Cons of Member-Managed LLCs:

  • Less efficient with many members
  • Can create conflict if roles aren't clearly defined
  • May not appeal to passive investors

Pros of Manager-Managed LLCs:

  • Allows members to focus on investment rather than daily operations
  • Attracts passive investors
  • Ideal for large LLCs with multiple members
  • Centralized expertise and professional management

Cons of Manager-Managed LLCs:

  • More formal and complex to set up
  • Requires careful selection and monitoring of managers
  • Can cause disconnect between members and daily operations

How to Choose the Right Management Structure

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

  • Size of the LLC: Smaller LLCs with a handful of members tend to function better with a member-managed structure. Larger LLCs may need the efficiency of manager management.
  • Member Expertise: If some members lack management skills or prefer a hands-off role, manager-management is a better fit.
  • Investor Needs: Passive investors typically require a manager-managed LLC to protect their limited involvement.
  • Operational Complexity: Businesses with more complex operations may benefit from specialized managers.
  • Long-Term Goals: Consider whether the company will seek outside investment, scale quickly, or involve silent partners.

Clearly documenting roles and responsibilities in your Operating Agreement ensures that your chosen structure operates smoothly.

LLC Structure Documentation  

LLC Operating Agreements are even more important if you are opting for a manager-managed LLC. This can discuss member voting rights, how capital is raised, what buyout provisions exist, etc. You can have a serious crisis on your hands when you don't have an operating agreement, as even the most basic of issues may not be agreed upon from the start. 

LLCs who opt for manager-managed may have a legal requirement to spell this out somewhere in the organizational documents. It's typically noted in the Articles of Organization you filed. 

You should include manager roles and what authority they have for all decisions. Do they have sole responsibility for decisions like hiring or purchasing company equipment? Without your own Operating Agreement, the state's LLC rules will apply, and they are not necessarily always favorable. 

State Filing Requirements and Legal Compliance

When forming your LLC, most states require you to disclose your management structure in the Articles of Organization. Choosing a manager-managed LLC usually requires formal declaration in these documents. Omitting this detail may result in the state defaulting your LLC to member-managed status.

Some states even require you to list:

  • The name(s) and address(es) of your manager(s)
  • Whether managers are also members
  • The authority granted to managers

To stay compliant:

  • Confirm your state's specific filing rules
  • Ensure consistency between your Articles of Organization and Operating Agreement
  • File any amendments if you later change your management structure

Frequently Asked Questions

What is the main difference between a member-managed and a manager-managed LLC? The primary difference lies in control: member-managed LLCs give all members a say in daily operations, while manager-managed LLCs delegate authority to specific individuals.

Can a non-member be a manager in a manager-managed LLC? Yes. In a manager-managed LLC, managers can be non-members hired for their expertise, allowing flexibility in operations.

Do I need to file anything to indicate my LLC is manager-managed? Yes. Most states require you to indicate this in your Articles of Organization and recommend detailing responsibilities in your Operating Agreement.

Can I switch from a member-managed to a manager-managed LLC later? Yes. You can amend your Operating Agreement and, in many cases, your Articles of Organization to reflect the change, depending on your state’s requirements.

Which LLC structure is better for startups? For hands-on founders, a member-managed LLC offers simplicity. However, if you plan to scale and attract passive investors, manager-managed may offer more flexibility.

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