Chauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Written By Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Contributor Jane Haskins, J.D. contributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Jane Haskins, J.D. contributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Jane Haskins, J.D. contributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Jane Haskins, J.D. contributorJane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation. She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses.
Updated: Jul 21, 2024, 8:47pm
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Limited liability companies, or LLCs, come in all shapes and sizes. Some are tiny businesses where “Mom and Pop” are the sole owners and operators. Others are companies co-owned by large groups whose many members can’t possibly all share an equal role in business management. Even though both of these structures can become LLCs, the businesses contained within would be poorly served by sharing the same management structure. As such, two basic structural designations exist to best suit an LLC in terms of size and goals: member-managed and manager-managed.
A member-managed LLC includes members (owners) in company operations, making each an “agent” to officially act on behalf of the company. This structure doesn’t necessarily require administrative responsibilities and power to be divided equally. It can, however, be built to keep members from being brought on as passive investors. Member-management is the default structural designation in most states, meaning that if it’s not specified in an LLC’s articles of organization or operating agreement, all members may be considered managers.
Member-management is best for LLCs with a small number of investors who want to keep things streamlined and claim direct responsibility for company operations. The LLC structure is popular in the first place due in part to its simplicity and the degree of control it affords, so it’s no surprise member-management is a common option for LLC owners. Member-management’s typical distribution of responsibility is similar to that of a partnership, which has key differences when it comes to liability but is also a popular choice for small businesses with a smaller number of actively engaged owners.
Member-management usually suggests that to be an investor, one must be able to serve in a hands-on managerial role, but this isn’t always the case. For some businesses, this is great, as it leaves decision-making power only in the hands of members with a certain level of personal investment and engagement. Much flexibility exists in how a business can be structured, but with a more complex design comes more risk and more complication. Consult your legal professional to determine the best way to structure your business.
A manager-managed LLC delegates operational control to designated managers. LLC members can often still vote on key issues but don’t act as managers of the company and aren’t considered agents. For LLCs with many members, consolidating or “centralizing” administrative responsibilities and power can be much more practical than decentralized management. That said, this structure can work fine for LLCs with small memberships, too—it’s just a matter of preference. An LLC can have one manager or several—there’s really no limit—but the number of managers is usually much smaller than the number of members.
As with a corporation, a manager-managed LLC allows for passive investors. This allows the LLC to extend membership to people who don’t want to be involved in day-to-day business operations. Indeed, the role of a manager or managers under this structure is not dissimilar from that of a corporate director. Manager-management is preferable for LLCs that value the ability to attract diverse investors.
A manager-management structure is also a good choice for businesses with members not experienced in management or the business’s industry. Because designated managers don’t actually have to be existing members of the LLC, manager-managed LLCs are likely to have an easier time attracting competent management. People who already have a job and are not interested in devoting work to the business are typically better suited to be members of manager-managed LLCs.
