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What Is the difference between a Member-Managed vs.
Manager-Managed LLC?
Last updated Sunday, April 7, 2024
The members or
owners of a member-managed LLC are responsible for the day-to-day operations of
the business, while only certain designated members (or even outside appointees
-- for example, a board of directors) run the operations of manager-managed LLCs.
The core difference between the two is that manager-managed LLCs can have
passive investors written into the business structure. In member-managed LLCs,
all owners have a voice proportional to their share. Member-managed LLCs tend
to require each investor to serve a much more hands-on role than
manager-managed LLCs, since each member can be involved in any decision, not
just large issues subject to a vote.
Member-managed LLCs
work like this: All members participate in the decision-making process of the
LLC. Each member is an agent of the LLC and each member has a vote in business
decisions. Decisions can be made by consensus. The members must agree on how to
break a tie. Each member has the authority to make decisions on behalf of the
company in their area of expertise, but contracts and loan agreements must be
approved by a majority of the members.
Manager-managed
LLCs give the authority of the members to the manager or managers, who become
agents of the company. A manager may be a member but does not have to be. A
manager may be another LLC or a corporation unless your state sets restrictions
on the types of entities that may be managers of an LLC.
Most LLCs are
member-managed by default in most states. That is, no manager is selected and
member management is assumed. In most states, manager management must be
designated in the Operating Agreement. Being a LLC gives you greater authority
to make decisions for the LLC and its fiduciary responsibilities.
If your LLC selects
a manager, the manager has the authority to make decisions for the LLC and this
person has fiduciary responsibilities. If you don't want someone else deciding,
then the members can and should keep that right. For most banks in Nevada, as
manager must be a 25% or greater owner to make fiduciary decisions for the LLC
such as opening a bank account.
The time to
determine who will manage your LLC is before you begin operations. The
operating agreement should specify who will manage and how decisions will be
made. Don't leave this important question for later or you may find yourself in
legal difficulties.
Nevada
Commercial Registered Agent
Entity # E0502742015-6
NV Business ID NV20151637034
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Revised April 7, 2024 10:24 AM
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