Manager Managed LLC: Everything You Need to Know
A manager managed LLC is a kind of limited liability company (LLC) in which one manager or a team of managers has control over the company’s daily activities, as opposed to the members of the LLC. 3 min read
2. Pros and Cons of Manager Management
3. The Employee Status of LLC Managers
4. When to Select Your LLC’s Management
Manager Managed LLC
A manager managed LLC is a kind of limited liability company (LLC) in which one manager or a team of managers has control over the company’s daily activities, as opposed to the members of the LLC. This allows the appointed manager or team of managers to render decisions without a majority decision from all the shareholders, who relinquish authority to the managers. When such a system is adopted, the LLC owners vote on company issues, instead of pursuing active involvement in the operations of the company.
Managers in manager-managed LLCs need not be members of the company, unless restrictions in your state prohibit outside entities from performing such a role. However, an LLC needs one or more individuals to manage the company, playing a role similar to the board of directors in a corporation.
A manager-managed LLC can have any number of managers, but an odd number is generally preferred to avoid voting ties. Having a single manager can raise problems, as well, The LLC’s initial members will have to choose the number of managers at the outset.
If your LLC is manager-managed, it will most likely be legally required of you to state this choice in the organizational documents of your LLC.
Pros and Cons of Manager Management
Depending on your needs, manager management for LLCs has its advantages and disadvantages. The main ones fall into the following categories:
- Manager-managed LLCs can quickly respond to changing economic conditions without heavy administrative burdens.
- For this reason, a manager-managed LLC can be a good choice for a family business.
- Passive Members
- Some LLC members may be passive members, meaning they don’t take part in the daily decision making and thus have fewer liabilities. If such is the case, having an active member (or members) as the manager (or managers) makes more sense.
- If some members are not skilled at management, manager management may be preferred.
- LLC Size
- If an LLC is very large, it makes more sense to have one or several managers run the operation, as gathering all members and having them render a decision would be inefficient.
- Large LLCs benefit from having one or a few professional managers because for such organizations management alone can be full-time work.
- Generally, member-managed LLCs must list their members publicly. Manager-managed LLCs do not have to meet this requirement.
It’s also worth remembering that if a single manager runs your LLC, that manager has fiduciary responsibility and the right to make decisions on behalf of the LLC. If you don’t want others deciding the course of the LLC or to have the decision-making power concentrated in one or a few individuals, then manager management is probably not for you.
The Employee Status of LLC Managers
If your manager-managed LLC brings in a professional manager, then that person is considered an employee. If they are not an outside entity but rather an LLC member performing management duties, then they are not considered an employee although they can receive payment as one. Such payment should be considered separate from the member’s status and be stated in the LLC operating or employment agreement.
When to Select Your LLC’s Management
In most states, the manager-management designations must be made clear in the operating agreement, which should state, amongst other things:
- Who the managers are and how they will make decisions.
- What responsibilities and roles the managers will have.
- How managers may be replaced.
- What the manager’s voting rights are.
- How LLC members can choose new managers.
- What the buy-out provisions are.
If you don’t have such an operating agreement, there is the risk of a management crisis if an unexpected conflict arises because these issues were not agreed upon beforehand.
Additionally, if you do not draw up your own LLC operating agreement, then the rules your state has set out for LLCs will apply, which may not be ideal for your business.
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