What's the difference between a Member-Managed LLC and a Manager-Managed LLC?

Starting a Remote Business
#1

The main difference between a member-managed LLC and a manager-managed LLC is that they have vastly different management structures.

  1. Member-managed LLC –Member-managed LLCs are more common and good if you have few members and want each member to have significant input with the operations of the business. For a startup or small business with just one or three co-owners, it’s easiest to divide management powers among the owners with a member-managed LLC. Member management is also a wise choice if your business requires very specialized expertise.
  2. Manager-managed LLC – This is less common, but useful if you want your startup or small business to run more like a corporation. In a manager-managed LLC the control of the owners are voted on company issues instead of members being involved in the company’s day-to-day operations. If you have family investors or other investors, a manager-managed LLC is the better choice to centralize decision-making authority in a few key people. The same goes for a company with many owners. In a larger LLC with many members, manager-managed may be the better option because it can streamline business decisions.

In summary , with a member-managed LLC, all members (owners) are involved in decision-making. In a manager-managed LLCs, the elected members or owners are responsible for the day-to-day operations of the business, while certain designated members (or even outside appointees, like a board of directors) run the operations. Both management styles offer benefits depending on the nature of your LLC. Note: As a single-member LLC, you (the owner) are the manager.

#5

Why do I see people mention operating agreements and the management of LLCs?

Although a operating agreement is not a requirement it’s strongly recommended in order to outline the details of your business finances and internal operations (for example the management structure).

Let’s focus on this specific, LLC operating agreements help establish the roles of managers and members. It defines the level of control, decision making abilities each manager and member have.

If you don’t delineate these role and decisions in the LLC operating agreement the state law will apply os the default, which can give control to certain members or leaving members inequitable control and your business is more prone to liability issues.

You can learn more about the details of how to create an operating agreement plus free templates to create your LLC operating agreement. Check out how to create your operating agreement.

#6

What are the pros and cons of manager-managed LLCs?

Pros of manager-managed LLC

  1. Makes it easier for large LLCs to operate quickly.
  2. Allows managers with active control to make quick decisions without having to get the consensus of all owners.
  3. Centralizes decision-making authority, preventing a “too many cooks” situation.

Cons of manager-managed LLC

  1. All owners don’t get to participate in management decisions.
  2. Need to carefully document the manager’s authority in the operating agreement

How many managers can a manager-managed LLC have?

There is no limit to the number of managers. In the operating agreement it’s critical to define the scope of involvement each manager has in your business.

What are the pros and cons of member-managed LLCs?

Pros of member-managed LLC

All members have a say over management decisions. Less complicated structure, particularly for small companies.

Cons of member-managed LLC

Management of the LLC can be a full-time job, taking owners’ time away from strategic decisions.