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What Is the difference between a Member-Managed vs. Manager-Managed LLC?

Last updated Friday, February 12, 2021

 

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.

 

 

 

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© 2021 Marc Gohres

Revised February 12, 2021 8:06 AM

 

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