Manager LLC: Everything You Need to Know
Manager LLC concerns how an LLC, or limited liability company, is managed. The company's owners, known as members, or managers manage the company. 3 min read
2. Member-Managed LLCs
3. Manager-Managed LLCs
Manager LLC concerns how an LLC, or limited liability company, is managed. The company's owners, known as members, or managers manage the company. Management can mean different things, but in general, it means the ability to participate in day-to-day business activities, make business decisions, and enter into contracts.
LLC managers have the ability to do the following:
- Open or close business bank accounts
- Make financial and legal decisions
- Buy or sell vehicles and real estate
- Dispose of LLC assets
- Divest of LLC assets
- Hire staff and employees
The manager has a legal obligation to act in the company's best interest.
When an LLCs owners manage the company, it's a member-managed LLC. In member-managed LLCs, members don't appoint a third party to make business decisions.
All of the members take part in decision making for the business and vote on business decisions. While each member is able to make business decisions, the majority of members must approve actions like entering into contracts and loan agreements.
In a single-member LLC, the sole owner/member typically acts as the manager and is called the “managing member.” However, in an operating agreement, the managing member may be known as simply the “manager.”
Most LLC owners choose member management so that all members share the responsibility for daily business operations. It's more common to have member-managed LLCs because most LLCs are small businesses. They typically have limited resources and don't need a separate management structure.
LLCs tend to have a streamlined organizational structure, unlike corporations, which have boards of directors and officers. Many people who prefer the LLC structure want to have an active role in running and managing their business.
If you, along with the other owners of your LLC, want to take a very active role in running the business, you'll do better with member management.
Most states have a default management structure of member-managed LLCs. If you don't specify a structure in your formation documents, the state considers it a member-managed LLC.
Your operating agreement should fully define your LLCs managing members' rights and responsibilities. Your operating agreement should also outline whether managing members have the sole authority to make important business decisions or if group approval (or another form of approval) is necessary.
Sometimes, business owners prefer to act more like passive investors instead of active participants, so they may prefer a manager management structure. Most states require LLC owners to state they'll operate a manager-managed LLC in their operating agreement.
The LLC owners will appoint one or more managers, who are the only ones that can enter the LLC into agreements and contracts, as well as make business decisions and run day-to-day operations. A manager can be a member of the LLC but isn't required to be.
Having a lot of members in your LLC can make it difficult to manage a business, leading to inefficient operations. It may be more effective and efficient to delegate management to one person or a small group. It also allows for the right balance of the various interests and skills of the LLC's members.
Two instances where LLC members may prefer a manager-managed structure include the following:
- The business or ownership is too complex or large to allow for efficient management sharing.
- Some members lack essential management skills.
When members want one or more of the other members to make business decisions and run the company, they may opt for an internal manager. The members who don't act as managers can't enter into agreements or contracts. They also don't take part in daily operations, unless the managers give them this authority (usually in writing).
Although a member can advise a manager, the manager doesn't have to take the advice. Members still hold power. If they all agree, they may remove the current managers and appoint new ones. However, such a change usually requires all members to agree.
You may choose another LLC or corporation to be your LLC manager unless your state has restrictions on who can manage LLCs.
Each business has its own way of running operations, so choose a management style that's most efficient and advantageous for your company.
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