Key Takeaways

  • A managing member in an LLC is an owner actively involved in daily operations and decision-making, authorized to bind the company in legal and financial matters.
  • In member-managed LLCs, all members share management authority unless one or more are specifically designated as managing members.
  • In manager-managed LLCs, management power is given to designated managers or an outside party, and non-managing members typically act as passive investors.
  • Managing members owe fiduciary duties—including duties of care, loyalty, and good faith—to the LLC and its members.
  • Clearly defining a managing member’s authority, responsibilities, compensation, and decision-making powers in the Operating Agreement helps prevent disputes.
  • Business considerations such as liability exposure, tax implications, and succession planning should influence how you structure and select managing members.

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.

Member-Managed LLCs

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.

Managing Member Responsibilities and Authority

In a member-managed LLC, a managing member is more than just an owner—they are the individual who actively steers the company’s operations and strategic decisions. Their responsibilities typically include:

  • Daily Operations: Overseeing business activities, supervising employees, managing finances, and handling vendor and client relationships.
  • Decision-Making: Making key strategic and operational decisions, often including entering into contracts, approving budgets, and allocating company resources.
  • Legal Authority: Acting as the company’s agent in legal and financial matters, including signing binding agreements and representing the LLC in negotiations or disputes.
  • Fiduciary Duties: Managing members owe fiduciary duties of loyalty, care, and good faith to the LLC and its other members. This means they must act in the best interest of the company, avoid conflicts of interest, and make informed decisions.
  • Compliance Oversight: Ensuring the LLC complies with state laws, regulatory requirements, tax obligations, and internal policies.

The scope of a managing member’s authority should always be clearly defined in the LLC Operating Agreement. This document can limit or expand their powers, set conditions for decision-making, and outline procedures for approving major actions (such as acquiring debt or selling assets).

Manager-Managed LLCs

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.

Business Considerations When Appointing a Managing Member

Choosing who will serve as a managing member—and defining their role—has significant long-term implications for your LLC’s success. Before appointing a managing member, consider the following:

  • Liability Exposure: Because managing members make binding decisions, they face a higher risk of personal liability if they breach their fiduciary duties or act negligently. Proper liability insurance and indemnification clauses can mitigate this risk.
  • Compensation and Incentives: Establish how managing members will be compensated—whether through salary, profit distributions, or performance-based bonuses. Compensation structures should align with the LLC’s goals and growth strategies.
  • Succession Planning: Plan for what happens if a managing member resigns, becomes incapacitated, or is removed. The Operating Agreement should outline procedures for transferring authority or appointing a successor.
  • Investor Relations: In LLCs with passive investors, defining the managing member’s authority helps maintain trust and transparency. Investors should understand the scope of management powers and how major decisions will be communicated.
  • Tax Implications: Because managing members are considered self-employed, they are responsible for paying self-employment taxes on their share of the LLC’s income. Structuring the LLC properly and consulting a tax professional can optimize tax outcomes.

Clearly addressing these considerations in the Operating Agreement is essential to avoid disputes, maintain smooth operations, and ensure the LLC’s long-term stability.

Frequently Asked Questions

  1. What is a managing member in an LLC?
    A managing member is an owner actively involved in operating the LLC, making business decisions, and binding the company in legal and financial matters.
  2. Do all members have to be managing members?
    No. In a member-managed LLC, all members can manage the company. In a manager-managed LLC, only designated managers—or an appointed managing member—have authority.
  3. What fiduciary duties does a managing member owe?
    They must act in the best interest of the company and its members, avoid conflicts of interest, act with reasonable care, and remain loyal to the LLC.
  4. Can a non-member be a managing member?
    Typically, no—only members can be designated as “managing members.” However, in a manager-managed LLC, the company may appoint an outside manager with similar powers.
  5. How should a managing member’s authority be documented?
    Their powers, responsibilities, compensation, and decision-making authority should be clearly detailed in the LLC’s Operating Agreement to prevent disputes and ensure smooth governance.

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