What Is a Manager of an LLC: Everything You Need to Know
Understanding what is a manager of an LLC is an important step in setting up your new business and determining the roles each person involved will play.3 min read
2. What Is a Limited Liability Company?
Understanding what is a manager of an LLC is an important step in setting up your new business and determining the roles each person involved will play in the grand scheme of things.
In an LLC business structure, members are entitled to certain rights, such as:
- Sharing in the company's profits and losses
- Receiving distributions from the LLC
- Managing the business
These rights should be outlined in the LLC's operating agreement. In addition, a member may be entitled to decision-making rights when it comes to managing the daily activities of the business. Examples of these rights may include:
- Making decisions related to the company's daily operations
- Hiring employees
- Firing employees
- Promoting employees
- Entering into contracts on behalf of the company
Managing members also act as agents of the company and have the ability to bind the LLC to legal contracts. This power can be enacted in a number of scenarios, including, but not limited to:
- Establishing supplier contracts
- Selling land or other assets on the company's behalf
A limited liability company can also have different member classes that have a different set of rights within the company. One example may include members who have priority rights to financial distributions over other members within the LLC. Another example is when certain members have specific decision-making rights while others may have limited rights in this area or no decision-making rights at all.
A limited liability company is required to have at least one member. Your operating agreement for a limited liability company will likely be simple in this case because the sole member of the company will retain all the rights and burdens associated with the company. This sole member will also have control over all the decision-making rights.
A few examples of typical ownership structures in an LLC can include:
- Multiple family members owning a business together
- Multiple people, who are unrelated, embarking on a business venture together
- A single manager sharing ownership with multiple non-manager members
- A real estate developer sharing ownership with a financial institution that provides the majority of the company's equity
What Is a Limited Liability Company?
The LLC, or limited liability company, business structure is a relatively new option for business owners in the United States. In terms of management, the limited liability company functions in a similar manner as the corporation business structure. In other ways, however, the role of the manager is much different in an LLC.
In an LLC, owners are called "members." When you're the member of a limited liability company, you're able to claim rights that allow you to play an active role in the daily management of the company. As an alternative, a limited liability company has the option to hire managers from the outside to handle the company's day-to-day operations. These managers are considered employees of the company. A member can also have a management position within the company.
When you start an LLC, you'll need to determine how you would like your company to be managed. You have a couple different options when deciding on the management structure of your limited liability company:
In a member-managed LLC, the members, or owners, are actively involved in running the business. A manager-managed LLC, however, requires specifically designated members, or managers hired from outside to manage the company. A manager-managed LLC can also use a combination of members and non-members to handle the daily management of the company.
In a manager-managed limited liability company, members who are not specifically designated as managers and are not actively involved in the daily operations of the company are considered to be passive investors. Similar to other business structures, a limited liability company is required to have at least one person or entity that is designated to manage the company. This manager acts in a similar manner as the board of directors in a corporation structure.
An LLC can be managed by all the company's members, or the company can hire a professional from outside to manage the business. There are no state laws in place that require a limited liability company to be managed by its members.
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