In most states , LLCs are member-managed by default under state law. This means that if you don't designate a management structure for your LLC either in your formation documents or operating agreement , then it will be considered a member-managed organization. In some situations, a manager-management structure may be preferable.
The most common example is when some members only want to be passive investors in the business. These owners often feel more comfortable if the LLC delegates management responsibilities to one or more other members or nonmembers. Two other situations where LLC owners may prefer a manager-management structure are: 1 when your business or ownership is too large, diverse, or complex to efficiently allow for sharing management among all members; or 2 when some of your members are not particularly skilled at management.
Sometimes, of course, these two situations go together. Delegating management to a smaller group of people or just one person can be an effective way of balancing the varied skills and interests of multiple LLC members. It can also ensure more competent management of the business.
While LLCs that appoint managers often rely on one or more of their own members to fill the role, you can hire a nonmember as manager. If you choose member-management, you may not be required to formally document this choice anywhere although many states ask you to state whether your LLC will be member-managed or manager-managed in the articles of organization that you file to form your LLC.
To avoid, or at least minimize, this issue, it would be wise to seek the advice of a tax professional if you will have a managing member for your LLC.
Generally, a non-managing member of an LLC will be taxed on certain fringe benefits he or she receives, such as medical insurance paid by the company. A managing member, having his or her income considered as earned income rather than passive income, may be able to enjoy a tax-free receipt of fringe benefits. This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.
Haman, J. A member of an LLC is similar to both a shareholder and a director in a corporation. A member, being an owner of the LLC, has the authority to make major business decisions, such as to enter into contracts on behalf of the LLC, and to buy and sell company assets.
A member shares in the profit or loss of the business, but does not receive a salary or wages. An LLC manager is a person who is hired by the members to have the responsibility of running the day-to-day business operations. An LLC manager is similar to an officer of a corporation. A startup attorney can help you to avoid this situation by drafting a clear LLC operating agreement that addresses all appropriate issues.
Depending on the complexity of your governance structure, plans for investment and growth, and the number of owners, the cost of having an LLC operating agreement drafted for your LLC can vary. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers. LLCs are generally easy to reorganize and flexible in terms of changing structurally, so yes, you usually can change the management of your LLC at a later date.
There is no limit to the number of managers, and you define their scope of involvement. It is perfectly fine to let all investors act as managers. Toggle Navigation. Member-Managed vs. Manager-Managed LLCs. Manager-Managed LLCs: 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. That said, the following considerations often weigh more in favor a manager-managed LLC structure: Members want to be only passive investors Members lack management skills and experience Members don't want to be involved in day-to-day operations and decision-making There are too many owners to effectively manage one company Regardless of the type of structure you select, it is important to delineate the rights and obligations of LLC managing members in your company's operating agreement.
Ready to start your LLC? Contents 2 min read Ready to start your LLC? About the Author Michelle Kaminsky, J. Related Topics. Facebook Twitter. This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.
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