In this article, you will discover the difference between a Member-Managed LLC vs. Manager-Managed LLC.
You will also understand how each management type works and find answers to the most frequently asked questions.
What’s the difference between a member and a manager?
A member of an LLC is the owner of the company. This person may own a small portion of the business, half, or 100%, depending on how many partners there are and how ownership is distributed among them.
LLCs have no limits on the number of members. It can have a single member or as many as desired.
On the other hand, a manager of an LLC is a person chosen by the members of the company to sign contracts and agreements, as well as to make certain decisions and execute day-to-day operations.
In summary, an owner creates an LLC and is responsible for designating a person to hold the position of manager (in case they don’t want to manage the business themselves).
An LLC can be managed by its members or by the assigned manager(s). Let’s see the difference.
How does a Member-Managed LLC work?
This type of management occurs when the owners of an LLC are responsible for engaging the company in agreements and contracts, making management decisions, and conducting day-to-day operations.
We typically see this type of management in small companies or startups where most tasks and functions have not yet been delegated.
How does a Manager-Managed LLC work?
In the case of larger LLCs, members often decide to assign one or a few individuals the task of managing the company. These individuals are referred to as managers (or LLC Managers).
When one or more managers are designated, they are responsible for engaging the LLC in agreements and contracts, managing the business, and conducting day-to-day operations.
Once one or more managers are appointed, the members no longer have involvement in the day-to-day operations or the authority to engage the LLC in agreements and contracts.
They are responsible for selecting members and can terminate them in case of any issues. However, as long as they decide to delegate this role, members play a more passive role in the company.
It’s essential to note that the Manager’s powers are properly outlined in the Operating Agreement.
What does a manager of an LLC do?
Whether it’s decided that some members will also be the managers or a manager is appointed from outside the members, this person is responsible for performing the following tasks:
- Making financial decisions.
- Making legal decisions.
In summary, an LLC manager is legally obliged to act in the best interests of the company.
What happens if some members want to manage the LLC and others don’t? Is this possible?
For example, if we have 3 members, and 2 of them don’t want to take on the management but the third one does, then this member can be designated as the LLC manager, becoming a member-manager.
In summary, we would say that the first two are members, and the third would be a member-manager.
The quantity of 3 members is just an example; in reality, all 3 can be member-managers, just 1 can be, or 2 of them can be. In fact, if there are more members (let’s say 5), all of them can be member-managers; it’s their decision.
How does the administration of a single-member LLC work?
It basically functions the same as if there were more members, except that most single-member LLCs decide to be the administrators themselves.
However, this doesn’t mean that another person cannot be designated as the LLC manager; of course, it can.
Those who don’t want to reveal that they are the owners of an LLC choose to have their company managed by a manager and then assign themselves as managers. In this way, they protect their identity, as being a manager doesn’t mean they are also the member. This person would continue to control and own their LLC, but privately through an operating agreement.
Frequently Asked Questions
Can an LLC have two member-managers?
That’s correct. It works whether there are only two unique members, and both decide to manage the LLC, or if there are more members, and only two of them choose to take on this role.
How do you choose between an LLC managed by members or managers?
It always depends on your business’s needs. For some LLCs, it’s better to be managed by their members, while for others, it’s better to have designated managers. It depends a lot on a company’s particular circumstances, but you can determine whether it’s more beneficial to take on that responsibility yourselves or delegate it to the right person.
Do managers have fiduciary duties?
Yes, LLC managers are legally obligated to act in the best interest of the company and make decisions that benefit its growth.
Are LLC managers considered legally responsible?
Generally, managers are not legally responsible to third parties for their actions.
There are exceptions where they might be. For example, if they act illegally or breach the terms of their contracts.
Does Rex Legal offer LLC management services?
No, although we provide information on this topic, we do so solely to add value and help you address questions. However, we do not offer LLC management services. We can assist you with the establishment of your LLC or corporation, EIN, DBA, annual reports, registered agent, and other legal responsibilities (you can review the services we offer).
Need help with your business in the United States?
While we do not provide management services, we can assist you with all other necessary aspects of your business, as mentioned in the paragraph above.
So, if you require assistance with any legal business process, please contact us, and we will be happy to help.