Info about the Limited Liability Company & Corporation
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Member Managed LLC v. Manager Managed LLC

A member managed and a manager managed LLC are formed the same way and subject to the same LLC formation requirements in each state. Some states require that you designate the structure in the formation documents.  Once your LLC is formed, you need to set up your desired structure (manager managed or member managed) in the LLC Operating Agreement for your new limited liability company.  This is how you set up your desired structure.

CLICK HERE FOR INFORMATION ON FORMING AN LLC (which is the first step to either a member managed or a manager managed LLC).  LLC FORMATION

CLICK HERE TO SEE MORE INFORMATION ON MEMBER MANAGED AND MANAGER MANAGED LLC OPERATING AGREEMENTS: MEMBER AND MANAGER LLC OPERATING AGREEMENTS

Once an LLC is formed, the members of that limited liability company will need to select a management structure to govern the LLC.  There are two main structure: (i) member managed and (ii) manager managed.

In the great majority of states, the LLC is member managed by default.  This means that if you do not make a choice, the choice is made for you.  In some states, if you want your LLC to be manager managed, you will need to include certain required provisions in the formation documents you file with the state.  So, please look out for these requirements or make sure the lawyer or document filing service you use to form your LLC knows you want your LLC to be manager managed in this case.

So- which structure should you choose?

If you look at most small business LLCs, you will see that they are member managed.  Member managed is the simplest structure and means that every member has authority to act on behalf of the business.  If all your members will have direct involvement in the management of the company, then a member managed LLC usually makes the most sense.    Internally, the members will agree on how they vote and when they will vote on certain LLC matters and agree with each other that they will each not act on behalf of the LLC until the proper votes are obtained.

A manager managed LLC is generally used when there are “passive” members in the LLC.  Passive means investors in the LLC who do not actively manage or otherwise operate the business of the limited liability company. If your limited liability company has passive investors, it is usually recommended you have a management layer between the members and the managers.

With a manager managed LLC, the members, by virtue of being members, do not have authority to manage and operate the business of the limited liability company.  Instead, the members elect “managers” and it is the managers who have this authority.  It is important in a manager managed LLC that the LLC Operating Agreement have specific rules and processes for the managers to follow when managing the LLC.  They have duties to act in the best interests of the LLC.

Now, a manager can also be a member of the LLC.  If a manager is an adult (over 18) natural person, the LLC laws do not imposed any restrictions on who can serve as managers.  In some states, there may be restrictions on having a legal entity (such as another LLC or a corporation) be a manager.

How Do You Set Up the Management Structure For Your LLC?

The management structure of an LLC is set up and is governed by the Operating Agreement of the limited liability company.  It is important that your operating agreement not only be clear about the type of management structure, but that it contain sufficient provisions detailing how members will manage (if it is member managed) or how managers are elected and how managers will vote and operate to manage the business.

The LLC Expert.com has attorney drafted, state specific LLC operating agreements for both member managed and manager managed LLC entities.  Plus, the forms come with an excellent LLC Operating Manual Guide to help LLC business owners with the management of the business. 

CLICK HERE TO SEE MORE INFORMATION ON MEMBER MANAGED AND MANAGER MANAGED LLC OPERATING AGREEMENTS: MEMBER AND MANAGER LLC OPERATING AGREEMENTS

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