Member-Managed vs. Manager-Managed

Conference tableA decision you must make when starting a limited liability company is whether your LLC will be member-managed or manager-managed. Though you may change your mind later, it is better to think about your preferred structure at formation rather than needing to amend your filings. Whether you start an LLC as member-managed or manager-managed depends on what level of authority you want your members to have in the business.

A member-managed LLC gives each member total control over the business. Though their powers may be limited by the Operating Agrement, members will have the authority to act on behalf of the LLC, which includes executing agreements, signing checks, and anything else a top executive is typically permitted to do. This does not mean each member’s decision making authority is unilateral; your Operating Agreement should still specify when and how members may act — such as requiring a majority or unanimous vote before actions may be taken.

Member-managed LLCs are the default in most states and will be your structure unless you explicitly request otherwise.

A manager-managed LLC limits authority to a board of managers that has been elected by the members. It is analogous to a board of directors in a corporation. This is the structure you will want if your LLC includes silent partners — partners who wish to invest and own a part of the LLC, but do not take part in the day-to-day decision making. The board of managers may include any or all of the members as well as any other people the members elect, thus making a manager-managed LLC a bit more flexible in terms of governance.

Specify your preference in your LLC’s Articles of Formation, and then clarify each member or manager’s authority in the Operating Agreement.