Key Takeaways

  • An LLC can be managed by members or designated managers, with clear distinctions in roles, authority, and liability.
  • LLC managers handle day-to-day operations and may or may not be members of the company.
  • Manager-managed LLCs are ideal for investors or passive members who do not wish to be involved in daily operations.
  • State laws and the operating agreement govern manager authority and responsibilities.
  • Choosing the right management structure can affect taxes, control, liability, and business continuity.

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.

LLC Members

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

Responsibilities of LLC Managers

Managers in a limited liability company (LLC) are responsible for overseeing the company’s operations. Their duties can vary depending on the company’s size, industry, and structure but typically include:

  • Making executive decisions regarding business operations
  • Hiring and supervising employees
  • Managing finances and budgets
  • Signing contracts and legal documents on behalf of the company
  • Ensuring compliance with federal, state, and local regulations

Unlike members, managers are not necessarily owners of the LLC. In a manager-managed structure, members delegate their managerial authority, making the manager the primary decision-maker for day-to-day business affairs.

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:

  • Member-managed
  • Manager-managed

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.

Member-Managed vs. Manager-Managed Structures

An LLC must choose between two primary management structures: member-managed or manager-managed. This decision significantly impacts control, liability, and business efficiency.

Member-Managed:

  • All members (owners) share responsibility for running the business.
  • Each member typically has equal voting rights unless otherwise specified in the operating agreement.
  • Suitable for smaller LLCs where all owners are actively involved in operations.

Manager-Managed:

  • One or more managers (who may or may not be members) are designated to run the business.
  • Non-managing members become passive investors with limited say in day-to-day decisions.
  • Ideal for larger LLCs or companies with investor-members who want to limit their involvement.

Who Can Serve as an LLC Manager?

LLC managers can be either:

  • One or more of the LLC’s members (owners), or
  • Non-members hired from outside the company.

There are no universal qualifications to become a manager, but the role often requires business acumen, decision-making ability, and a solid understanding of the industry. It is common for LLCs to appoint managers with specific expertise if members lack experience in certain operational areas.

Legal Authority and Limits of Managers

Managers have the authority to bind the LLC to contracts and other legal obligations. This authority includes:

  • Entering leases or purchasing property
  • Signing vendor agreements
  • Opening bank accounts and managing financial instruments

However, their powers are not unlimited. The LLC’s operating agreement should specify the scope of a manager’s authority. Some states may also impose default rules, such as requiring member approval for major actions like dissolving the LLC or amending the operating agreement.

Why Choose a Manager-Managed LLC?

A manager-managed LLC is often chosen when:

  • The members prefer not to be involved in daily operations.
  • Passive investors are part of the ownership group.
  • The business benefits from professional management.
  • There’s a need for streamlined decision-making, especially in larger companies or those with geographically dispersed owners.

This structure allows for clear separation between ownership and management responsibilities and can help prevent conflicts between actively involved and passive members.

Frequently Asked Questions

1. What is a manager of a limited company? A manager of a limited company (LLC) is an individual responsible for overseeing daily operations. They may or may not be a member (owner) of the LLC.

2. Do LLC managers have ownership rights? Not necessarily. A manager may be a member-owner, but they can also be a non-member hired to manage the business.

3. Can an LLC have more than one manager? Yes. An LLC can designate multiple managers in its operating agreement, each potentially with different areas of responsibility.

4. What are the benefits of a manager-managed LLC? This structure allows passive members to invest without managing operations and provides professional leadership, especially useful for larger or more complex businesses.

5. Are LLC managers personally liable for company debts? No, LLC managers generally have limited liability and are not personally responsible for business debts, unless they engage in wrongful or fraudulent acts.

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