Key Takeaways

  • LLCs can be structured as either member-managed or manager-managed, offering flexibility in daily operations.
  • An LLC manager can be a member or an external party with delegated authority to run the business.
  • Managers handle essential tasks like hiring, contracts, and legal obligations, and their powers are usually outlined in the operating agreement.
  • Manager-managed structures are ideal when some owners prefer a passive ownership role.
  • LLCs can designate different classes of members, with varied rights and responsibilities.
  • LLC managers owe fiduciary duties and can be personally liable if they breach these duties.
  • State laws and the LLC’s operating agreement both influence the scope of a manager’s authority.
  • Manager-managed LLCs are often preferred by investors, especially for larger or more complex operations.

A manager of LLC is an individual, group of people, or another business entity that handles the daily business functions of a limited liability company (LLC).

Management of an LLC

If you are starting a business and have come to the conclusion that an LLC is the right business structure for you, there are some additional decisions you'll need to make. One of these decisions is how your LLC will be managed. You have two options:

  • Member-managed
  • Manager-managed

LLCs provide the same liability protection that corporations do, but their management structure is very different. If you start a corporation, you'll be required to form a board of directors and choose officers to run the company. Owners of LLCs have tons of freedom when it comes to deciding exactly how they want to run their businesses. 

A member-managed LLC has its day-to-day operations handled by its members. Manager-managed LLCs are managed by either hired or appointed managers. LLC managers in a manager-managed structure can be members of the LLC, or third-party individuals or companies. A small group of members may choose to run the business or hire an outside company. 

If any of the LLC owners want to remain only nominal owners and avoid having to handle the regular tasks that come with running a business, you'll want to opt for the manager-managed structure. 

Choosing Between Member-Managed and Manager-Managed LLCs

The choice between a member-managed and manager-managed LLC depends on the size, complexity, and goals of the business. In a member-managed LLC, each member typically has equal authority to participate in day-to-day operations. This is often preferred for smaller businesses with active owners.

On the other hand, a manager-managed LLC is ideal when some owners want to remain passive investors or when the business requires professional management. This structure is common in larger LLCs or those with outside investors who prefer not to be involved in routine operations.

When choosing your management structure, consider the following:

  • Involvement of members: Will all members participate in daily operations?
  • Need for professional managers: Do you need experienced, non-member managers?
  • Decision-making efficiency: Would centralizing authority speed up operations?
  • Investor expectations: Are external investors seeking a hands-off role?

Who Are the LLC Members?

The owners of an LLC are called its members, much like how the owners of a corporation are called shareholders. LLC members can own any percentage of the business. 

Most states allow LLCs to have any number of members. A single-member LLC has only one member, and a multi-member LLC has any number above that. The only time the number of members allowed in an LLC is limited is when the business owners elect S corp status for the LLC with the Internal Revenue Service (IRS). S corps are not allowed to have more than 100 members. 

What Is a Managing Member?

Members of an LLC acting as managers for the business are representatives or agents of the company. These managers have the power to form contracts for the business. The business's operating agreement should spell out the rights and responsibilities of any and all managing members clearly. 

A managing member position within an LLC will usually have the authority to:

  • Make business decisions regarding daily company operations, like firing or hiring employees or independent contractors
  • Enter into binding agreements on behalf of the LLC, such as contractor agreements or property sales
  • Make legal decisions
  • Open or close business bank accounts and credit cards
  • Buy or sell property

A thorough operating agreement should clarify the extent of a managing member's authority. For instance, is a managing member allowed to fire an employee without the consent of the rest of the members? You'll want to outline which decisions require group approval and which may be made solely by the managing member or members. 

Duties and Fiduciary Responsibilities of an LLC Manager

An LLC manager, whether a managing member or an appointed third party, is responsible for acting in the best interest of the company. These duties generally include:

  • Duty of loyalty: Managers must avoid conflicts of interest and prioritize the LLC’s interests over personal gain.
  • Duty of care: Managers must act with reasonable care and diligence in decision-making.
  • Duty of obedience: Managers must follow the terms outlined in the LLC’s operating agreement and comply with state laws.

Violating these fiduciary duties can expose the manager to personal liability. For example, if a manager engages in self-dealing or gross negligence, courts may “pierce the veil” of liability protection. LLC operating agreements can define, expand, or limit these duties, but cannot eliminate them entirely in many states.

Member Classes

Some LLCs may offer different classes of membership for owners. One level of members might have more management responsibilities than another. Member classes can also differ on their percentages of profit distribution. 

All LLCs are required to have at least one member. Single-member LLCs will have only one class of membership and basic operating agreements. Multi-member LLCs can get more complicated with differing levels of membership, managing and non-managing members, and third-party management, if desired. 

Another option for LLC management structure is having the members form groups or classes for decision-making purposes. Each group may elect a representative to make decisions on behalf of the group. 

Can an LLC Have Both Members and Managers?

Yes, LLCs can have both members and managers, and in some cases, individuals can serve in both roles. However, they must distinguish when they are acting in the capacity of a member (owner) versus a manager (operator).

This distinction is critical for:

  • Decision-making authority: Managers make operational decisions; members make ownership-level decisions unless otherwise outlined.
  • Liability exposure: Actions taken as a manager carry fiduciary responsibilities.
  • Profit distribution vs. compensation: Members receive profit shares; managers may receive salaries or management fees.

Clearly identifying roles in the operating agreement helps avoid confusion and legal disputes.

Liability of a Managing Member

No matter the particular type of management structure chosen by the LLC, all managing individuals are required to act in the best interest of the company. 

LLCs are known for the protection they offer their owners from personal liabilities. This same protection is offered to all members, whether they are acting as managers or not. 

If any member acts unlawfully while making decisions on behalf of the LLC, they forfeit their liability protection. Managing members will need to act carefully to be sure that they are working within the laws of the state and the bounds of their operating agreement. Failure to do so could result in opening themselves up to personal liability. 

Appointing and Removing an LLC Manager

The process for appointing or removing an LLC manager depends on the terms of the operating agreement and applicable state laws. Typically, the members vote to elect or dismiss a manager. A majority vote is common, but this threshold can vary.

Some points to consider:

  • Appointment: Can be outlined during LLC formation or amended later via vote.
  • Removal for cause: May include misconduct, breach of duty, or failure to perform duties.
  • Voluntary resignation: Managers can resign per the terms of the operating agreement.
  • Replacement: A new manager may need to be appointed immediately to avoid operational disruptions.

Having clear provisions in your operating agreement will streamline transitions and reduce legal complications.

Frequently Asked Questions

1. Can an LLC have more than one manager? Yes, an LLC can appoint multiple managers. Their authority can be equal or divided based on roles, as specified in the operating agreement.

2. Can a manager be removed from an LLC? Yes, LLC members can typically remove a manager based on the voting procedures in the operating agreement or applicable state laws.

3. Do LLC managers have to be members of the company? No. A manager can be a non-member individual or even another business entity, especially in a manager-managed LLC.

4. How is a manager’s authority defined in an LLC? The operating agreement defines a manager’s authority, including what actions require member approval and which can be taken independently.

5. Do LLC managers receive profits from the business? Not necessarily. Managers may be paid a salary or management fee. Profit distributions are typically reserved for members unless otherwise stated in the agreement.

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