A manager-managed LLC is a popular option when an LLC has many members. An LLC structure provides its members with much flexibility including designating how the company will be managed. An LLC has the option of being:

  • Member-managed
  • Manager-managed

Starting an LLC

When starting an LLC, there are a few steps you will need to take including:

  • Obtaining all necessary licenses or permits.
  • Choosing a business name.
  • Having a business plan that outlines day-to-day operations, finance, and marketing.

Single-Member and Multi-Member LLCs

In an LLC, the owners of the company are referred to as members. In a single-member LLC, there is one owner who acts and the member and manager in charge of daily operations. There are a few necessary formalities with a single-member LLC, and you can choose any title you are comfortable with. This type of business entity is considered a disregarded one and allows you to avoid the double taxation that a corporation faces. You will simply need to report the income on a Schedule C on your personal tax return. A multi-member LLC is similar to a single-member except that there are multiple members or managers.

LLC Management Structure

After setting yourself up as either a single- or multi-member LLC, you will be required to choose the management structure you wish your company to utilize.

Member-Managed LLC

This is the simplest and most basic LLC structure, and if a structure is not chosen, most states will default to this option. In this structure, all members will be involved in the decision-making process, and it will require a majority vote for entering into loans and contracts.

This can be problematic in the event of death or serious illness of one of the members, as it can cause the entire LLC not to be able to act as necessary. If a member passes away suddenly, it can also lead to management by the probate office or ownership being split among numerous heirs.

There are benefits to member-managed LLC, including:

  • Allowing members to be involved in day-to-day operations.
  • The members contribute to the product and business.
  • The members get to work directly with customers.
  • They are an easier choice for small businesses.

Manager-Managed LLC

When choosing a manager-managed structure, you will need to formally create a manager role that operates independently from the owners. While the members will have the responsibility for high-level and major decisions, the manager will be responsible for the running of the business in such functions as:

  • Hiring
  • Terminating
  • Entering into contracts on the business's behalf
  • Writing checks

The owners will retain the sole authority to:

  • Merge with or acquire another business
  • Get a loan
  • Process high-level transactions

When choosing a manager-managed LLC, you will need to include this decision when creating your company's articles of organization and operating agreement. When choosing a manager, it can be a member or independent manager who has a good head for business. This dedicated manager member will not need approval of the other members to make routine business decisions.

A manger-managed LLC can be the best option for those with many members or members that only wish to be investors and not be involved in running the company. It can also be a good option for those who wish to be members but lack the experience to run a company. This can be beneficial since many banks prefer to loan money to those who have business experience.

Those who feel it may be difficult to get all the members to agree on business decisions may find it best to have a manager, so the decision-making process is not too lengthy. Family businesses can also benefit from this structure. It gives parents the ability to bring their children into a business without necessarily giving them control.

What Is a Director Managed LLC

In some states, you may be allowed a third structure option referred to as a director-managed LLC. In a director-managed LLC, the board of directors will have the ability to make the decisions for the business. If the LLC consists of one director, he will make the decisions. If there are multiple members on a board, it will require a majority vote to pass major decisions. A director is not required to be a member of the LLC.

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