Key Takeaways

  • The main difference between an LLC member and an LLC manager lies in control — members own the business, while managers handle operations.
  • Member-managed LLCs allow all owners to participate directly in day-to-day management, ideal for small or closely held companies.
  • Manager-managed LLCs delegate operational authority to designated managers, providing efficiency and investor flexibility for larger or multi-member LLCs.
  • Fiduciary duties, such as loyalty and care, differ slightly between members and managers depending on the management structure.
  • Your state’s LLC laws and your Operating Agreement determine how management authority, voting rights, and liability protections are allocated.

Understanding the difference between LLC manager vs member is critical when setting up an LLC.  An LLC is a relatively newer business organization option, and it has some similarities in management style to corporations, but it's still inherently different. There are some important things to understand about an LLC before you understand what role each person plays in the company: 

  • Anyone who is an LLC member is an owner. Owners can have any percentage of the company.
  • All states recognize single-member LLCs, as well as multiple member LLCs.
  • There is no cap on how many members an LLC can have.

Management of an LLC 

Owners of an LLC are called members. You can have one member, which is a single-member LLC, or multiple members, which is a multiple-member LLC. LLCs must have at least one person who manages the company, similar to what a board of directors does in a corporation. You can opt to have it be managed by its members, or you can hire an outside person or team to manage it instead. 

Essentially, with member-managed LLCs, all members participate in the day-to-day operations and management. With a manager-managed LLC, only designated member(s) or non-member(s) have the authority to run the business. Other members are considered passive investors and are not involved with day-to-day operations. 

When defining what management means in this context, details are often covered in the Operating Agreement. In general, it usually is the ability to enter into contracts on the LLC's behalf and participate in business decisions that take place. 

Other tasks managers can do include:      

  • Open and close a bank account     
  • Make legal and financial decisions

It doesn't matter who is managing, but that person has a fiduciary, or legal, duty to always act in the LLC's best interests. 

Key Responsibilities and Decision-Making Authority

The distinction between member-managed vs manager-managed LLCs centers on who has the authority to make day-to-day and high-level decisions. In a member-managed LLC, each member can:

  • Sign contracts
  • Hire and fire employees
  • Manage inventory or operations
  • Open and manage bank accounts
  • Make business development decisions

This structure works best when all members are actively involved and have complementary skills. However, decision-making can slow down if there are many members or if disagreements arise.

In contrast, a manager-managed LLC streamlines control by centralizing authority. Managers (who may or may not be members) take on operational duties, while other members act more like shareholders. These managers can:

  • Execute high-level strategies
  • Control hiring, marketing, and budgeting
  • Represent the LLC legally and financially
  • Manage investor relations or stakeholder communications

This structure is beneficial when some members prefer to be passive investors or lack the expertise or interest to manage operations directly.

Fiduciary Duties and Legal Obligations of Members and Managers

Both LLC members and managers owe fiduciary duties, but the scope depends on the management structure. In a member-managed LLC, all members typically owe duties of loyalty, care, and good faith to one another and to the business. This means they must avoid conflicts of interest, act in the company’s best interest, and exercise reasonable care in decision-making.

In a manager-managed LLC, these obligations shift primarily to the appointed managers. Members who are not involved in management generally have no fiduciary responsibilities, allowing them to act as passive investors. Managers, however, must act prudently, keep accurate financial records, and not engage in self-dealing or negligence.

Operating Agreements can expand, limit, or clarify these fiduciary obligations, but cannot eliminate them entirely under most state laws. It’s important to outline these duties clearly to avoid potential disputes among members.

Member-Managed Versus Manager-Managed LLCs

Members have equal say with a member-managed LLC. Each person has a vote and a say in how decisions are made. With a manager-managed LLC, the important decisions are left to designated members or non-members who are called managers. The remainder of members are considered passive investors and have no say in any business decisions. 

The main difference between manager and member managed is the ability to have passive investors with manager-managed LLCs. Because, with a member-managed business, all owners have a say. 

Members must have a more hands-on role in a member-managed LLC. Member-managed is the more popular option when people are setting up their LLC. This is because most LLCs tend to be small businesses who only have limited resources and therefore don't have a need, or the funds, for an outside management level. 

To understand the differences, if you want to run your own LLC and make products, take orders, hire any employees, etc., you will need to choose a member-managed LLC. Another example would be a restaurant or bakery where you want to develop recipes, bake your own treats, hire new employees, and open and close the shop. 

There are some scenarios where manager-managed may be preferable. The main example is when some members want to be passive investors. Other scenarios may be when your LLC is too big with too many members and it would be easier to delegate to a smaller team, or some members do not have the necessary skills for management. 

Manager-managed LLCs can also be more streamlined, as owners can ensure the competency of the management team in place. To choose member-management, you don't need to formally declare this option, but it's wise to disclose it on the Articles of Organization you file.

Voting Rights and Authority Allocation

Voting rights differ depending on whether your LLC is member- or manager-managed. In member-managed LLCs, each member typically has voting power proportional to their ownership interest or as outlined in the Operating Agreement. Members vote on major issues such as mergers, dissolutions, or amending governing documents.

In manager-managed LLCs, members delegate everyday authority to the manager or management team. The members retain limited voting rights, usually restricted to significant business decisions, such as replacing managers or approving mergers. This structure helps streamline operations by reducing the number of decision-makers involved in routine matters.

Pros and Cons of Member-Managed vs Manager-Managed LLCs

Both LLC management structures offer flexibility, but the right choice depends on how involved owners want to be and the LLC’s long-term vision.

Pros of Member-Managed LLCs:

  • Simple and cost-effective setup
  • Direct involvement from all owners
  • Encourages collaborative decision-making
  • No need to hire external management

Cons of Member-Managed LLCs:

  • Less efficient with many members
  • Can create conflict if roles aren't clearly defined
  • May not appeal to passive investors

Pros of Manager-Managed LLCs:

  • Allows members to focus on investment rather than daily operations
  • Attracts passive investors
  • Ideal for large LLCs with multiple members
  • Centralized expertise and professional management

Cons of Manager-Managed LLCs:

  • More formal and complex to set up
  • Requires careful selection and monitoring of managers
  • Can cause disconnect between members and daily operations

When to Change from Member-Managed to Manager-Managed

Some LLCs begin as member-managed but transition to a manager-managed structure as the business grows. This often happens when:

  • The number of members increases and consensus becomes difficult.
  • Some owners wish to become passive investors.
  • The business expands into multiple locations or industries.
  • Professional managers or outside investors are introduced.

Switching structures typically requires amending your Operating Agreement and, in many states, filing updated Articles of Organization with the Secretary of State. Before making the change, consider the long-term impact on voting rights, taxation, and investor relations.

How to Choose the Right Management Structure

When deciding between a member-managed vs manager-managed LLC, consider:

  • Size of the LLC: Smaller LLCs with a handful of members tend to function better with a member-managed structure. Larger LLCs may need the efficiency of manager management.
  • Member Expertise: If some members lack management skills or prefer a hands-off role, manager-management is a better fit.
  • Investor Needs: Passive investors typically require a manager-managed LLC to protect their limited involvement.
  • Operational Complexity: Businesses with more complex operations may benefit from specialized managers.
  • Long-Term Goals: Consider whether the company will seek outside investment, scale quickly, or involve silent partners.

Clearly documenting roles and responsibilities in your Operating Agreement ensures that your chosen structure operates smoothly.

LLC Structure Documentation  

LLC Operating Agreements are even more important if you are opting for a manager-managed LLC. This can discuss member voting rights, how capital is raised, what buyout provisions exist, etc. You can have a serious crisis on your hands when you don't have an operating agreement, as even the most basic of issues may not be agreed upon from the start. 

LLCs who opt for manager-managed may have a legal requirement to spell this out somewhere in the organizational documents. It's typically noted in the Articles of Organization you filed. 

You should include manager roles and what authority they have for all decisions. Do they have sole responsibility for decisions like hiring or purchasing company equipment? Without your own Operating Agreement, the state's LLC rules will apply, and they are not necessarily always favorable. 

Recordkeeping and Transparency Requirements

Proper documentation is essential in both management structures, but it becomes especially critical in a manager-managed LLC. Managers should maintain detailed records of major business decisions, contracts, and financial reports to demonstrate accountability.

Members, even if not involved in daily management, retain the right to inspect company records in most states. Maintaining transparency helps prevent disputes and ensures that fiduciary duties are met. The Operating Agreement should outline how and when members can access company information and what level of reporting is required from managers.

State Filing Requirements and Legal Compliance

When forming your LLC, most states require you to disclose your management structure in the Articles of Organization. Choosing a manager-managed LLC usually requires formal declaration in these documents. Omitting this detail may result in the state defaulting your LLC to member-managed status.

Some states even require you to list:

  • The name(s) and address(es) of your manager(s)
  • Whether managers are also members
  • The authority granted to managers

To stay compliant:

  • Confirm your state's specific filing rules
  • Ensure consistency between your Articles of Organization and Operating Agreement
  • File any amendments if you later change your management structure

State Law Variations and Tax Implications

While most states allow either management structure, specific requirements vary. For example, some states require that the management type—member or manager—be explicitly listed in the Articles of Organization. Failing to make this designation can result in automatic classification as a member-managed LLC.

From a tax standpoint, both structures are treated similarly by the IRS unless the LLC elects corporate taxation. However, manager-managed LLCs may face additional reporting or recordkeeping obligations, especially if managers receive salaries distinct from member distributions.

Since each state has unique LLC statutes, it’s best to review your jurisdiction’s requirements or consult an attorney. You can find an experienced business attorney on UpCounsel to help determine the best structure for your LLC’s goals and compliance needs.

Frequently Asked Questions

1. What is the main difference between an LLC member and an LLC manager? Members are owners who contribute capital and may participate in decisions, while managers handle the company’s daily operations and have authority to act on its behalf.

2. Can a non-member be a manager of an LLC? Yes. Many LLCs appoint professional managers or third parties to oversee operations, especially when members prefer to focus on investment rather than management.

3. Do members in a manager-managed LLC have any control? Members retain authority over major business decisions, such as amending the Operating Agreement, admitting new members, or dissolving the LLC, but daily operations are handled by managers.

4. Can an LLC change from member-managed to manager-managed? Yes. The LLC can amend its Operating Agreement and state filings to reflect the change. This is common as businesses scale or bring in outside investors.

5. How should fiduciary duties be documented in an LLC? Include detailed provisions in the Operating Agreement specifying each manager’s or member’s responsibilities, limits on authority, and processes for conflict resolution to ensure legal protection.

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