LLC Management Structures
Updated: Sep 18, 2018
You and your fellow business owners have decided on an LLC as the appropriate business structure for your new business. At this point, you still have an important decision to make: the management structure of your LLC.
For most LLCs involving one or two owners, the decision is easy. When an LLC is small with just a few owners—which many small businesses are—a member-managed LLC is often the best management structure. However, in some cases, a manager-managed LLC may be the more appropriate choice.
With a manager-managed LLC there are two further choices to be made: the LLC can be managed by a group of managing members, or the owners may choose a third party to manage the LLC. The former is practical when some, but not all, of the members or owners are interested in managing the LLC while the latter is generally chosen when none of the members or owners have any desire to participate in the management of the LLC.
Member-managed LLCs vs. Manager-managed LLCs
In a member-managed LLC, all members play an active role in the day-to-day management of the company, and all members are authorized to act as agents of the company and can bind the company contractually. In many states, member management is the default management structure for LLCs; if you want a manager-managed LLC instead you must set this out in your LLC’s formation documents or operating agreement.
In a manager-managed LLC, members no longer play an active role in the day-to-day running of the company, nor are they agents who can bind the company contractually. Instead, management is delegated to either a group of members, who are known as managing members, or to a third party non-member. Unless your state places restrictions on who can manage an LLC, third party managers can also be another entity rather than an individual.
Reasons for Choosing a Manager-management Structure for Your LLC