Managing Member LLC: Everything You Need to Know
A managing member LLC refers to an individual in an LLC that plays an important role in the daily operations of the company. Managing members are directly responsible for business decisions and have the authority to act as they see fit on behalf of the company.3 min read
A managing member LLC refers to an individual in an LLC that plays an important role in the daily operations of the company. Managing members are directly responsible for business decisions and have the authority to act as they see fit on behalf of the company.
If you organize as a member-managed LLC, all of the company's members will play an active role in the daily activities of your business. Additionally, all members have the authority to act as the company's agents and can enter into legal and financial contracts on behalf of your business. A member-managed structure is the default for LLCs in most states. This means, if you wish to adopt a manager-managed LLC structure, you'll need to specify this in the relevant organization documents for your state.
Member-managed LLCs do not appoint an outside entity or non-member to act as the manager for the company. If you're forming a single-member LLC, you'll be directly responsible for the management of your company. In this case, you would become the "managing member" for your business. To simplify things, it is also possible to refer to the managing member simply as the "manager" in your company's Operating Agreement.
In many multi-member LLCs, it's not uncommon for a single person or business entity to be designated as the manager in order to keep daily operations as simple as possible. This is especially common in cases that involve investors who are not actively involved in the company's daily operations. Differentiating between managing members and non-managing members is fairly simple. If a member of your company is also a manager, they will be named a managing member. If, however, a member is not also expected to act as a manager, they will be designated as a non-managing member.
Choosing to organize as a manager-managed LLC means any members who are not specifically designated as managers are uninvolved in the daily operation of the company. This also means that non-managing members are not designated as agents with the authority to enter into legal and financial contracts on behalf of the company. In cases like this, non-managing members are essentially silent partners, typically contributing financially to the company and reaping the financial benefits when the company enjoys a success.
In a manager-manged LLC, the management of the company is delegated either to a specific member, group of members or to a non-member outside entity. In most cases, third-party managers can either be an individual or another legal business entity, unless your state has specific regulations that say otherwise.
It is possible for an LLC to have no managing members at all. In a manager-managed LLC of this nature, the members are the owners of the company but have no involvement in the daily activities of the company. The manager is hired in from outside to run the company on behalf of the owners. A manager-managed LLC needs to be careful to place explicit language in the Operating Agreement regarding the manager's bounds of authority and the rights that members should retain in regards to business decisions that affect the company's growth and direction.
Hiring a third-party manager is a common practice when members of an LLC are not necessarily interested in participating in the daily operations of the company. These are usually highly experienced individuals who are hired on as paid executives to oversee business operations of the LLC.
Managers should be expected to sign certain signature blocks in a contract that outlines their capacity as a manager for the company and not just another member. These contracts are similar to those that are signed in certain corporate settings. A manager should be specifically named as a manager or managing member, wherever appropriate, rather than a member of the company. Doing so will specifically outline the manager's role and duties and create a clear line of separation between the manager and the rights of the company's owners or members.
There are some circumstances, however, in which the LLC is 100 percent manager-managed and the manager is in charge of every aspect of the business. In these cases, the manager has complete say over the actions and direction of the company. However, the manager still has an obligation to fulfill the wishes of the LLC's members.
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