What Is The Difference Between A Member-Managed And Manager-Managed LLC?

member managed LLC

If you are starting a new company, you likely have questions about choosing an entity, management structure, and many other legal issues that will impact and shape your new company.  One of the most common questions when starting a California limited liability company is whether a startup should be member-managed LLC or a manager-managed LLC.  A member is an equity owner of the LLC while a manager is a person (owner or not) who is empowered to make decisions on behalf of the LLC.  The experienced corporate lawyers at Startup Company Counsel have advised many startups to determine which management structure is right for them.

Member-Managed LLC

In a member-managed LLC, each member has an equal say in the management of the company, unless otherwise stated in the operating agreement.  A member includes any person listed in the company’s operating agreement for the business.  In most states, when establishing an LLC, if it is not designated in the formation operating agreement, the LLC will become a member-managed LLC by default. In a properly formed member-managed LLC, the operating agreement would also include member voting rights, buy-out provisions, additional capital contributions, and other important management and operational proceedings.

Manager-Managed LLC

In a manager-managed LLC, the members appoint managers in the operating agreement, and each are responsible for the daily operations of the business.  Depending on the business structure, members may retain rights to larger management decisions, or they may be relegated to the role of passive investors without any say in the management of the business.  The LLC manager can either be an existing member of the LLC or it can be someone from outside the organization.

How To Choose?

So how do you know which form of management is right for your LLC?  It is important to clearly identify your goals.

  • Who are the members of your LLC? Do they intend to be passive investors, or is it important to them to be able to dictate the daily management of the business?  If the members of the LLC want to run the daily operations of the LLC, the LLC should be member-managed.
  • How large are the daily operations of the LLC? Is it feasible to have multiple members planning and executing business operations, or is it necessary to have a single point of contact?  It is important to consider what form of management is best for the LLC.
  • What is your personal vision for the management of this LLC? Do you intend to be executing daily business operations, or do you prefer to remain a passive investor?  If you do not have management experience and are hesitant to make important decisions, it may be best to have a manager-managed structure.

By clearly identifying the goals of all members and the needs of the company, you can communicate effectively about which form of management offers your LLC the best chance of success.

Contact A Silicon Valley Corporate Lawyer Today

Let the corporate lawyers at Startup Company Counsel ensure the success of your new limited liability company by helping you understand all aspects between member-managed and manager-managed, and help you build a successful LLC from the ground up.  Call the reputable Silicon Valley corporate lawyers at (408) 441-7555, or use our online contact form to schedule your consultation today.

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