Member-managed vs
Manager-managed LLC
2025 LLC Guide
Member-managed and Manager-managed LLC: A Comprehensive Guide
Discover the key differences between Member-managed and Manager-managed LLC, in our friendly and informative guide. Learn how to choose the right management structure for your business. When forming an LLC, you must decide whether it will be Member-managed or Manager-managed. Another way to describe this is that you need to decide how your LLC will be managed.
An LLC can either be managed by its Members (a Member-managed LLC) or by its Managers (a Manager-managed LLC).
A Friendly Guide to Member-managed vs. Manager-managed LLCs
When you’re starting a Limited Liability Company (LLC), one of the first decisions you’ll need to make is how it will be managed. This decision boils down to two main types: Member-managed LLC and Manager-managed LLC. But don’t worry! We’re here to help you understand these terms in a simple, friendly way.
Member-managed LLC: What Does It Mean?
A Member-managed LLC is when all the owners (Members) actively participate in running the business. Each Member has the authority to make decisions and bind the LLC in contracts.
Key Features of Member-managed LLCs:
- All Members Involved: Every Member can participate in day-to-day operations.
- Simplicity: This structure is often easier for small businesses.
- Decision-making: Members make decisions collectively.
Manager-managed LLC: What Does It Mean?
A manager-managed LLC designates one or more managers to handle contracts, daily operations, and business decisions. Members (owners) typically have no authority to bind the LLC or participate in management. While members initially elect (and can remove) managers, their role becomes largely passive thereafter. Note that some members may also serve as managers. The specific management structure is determined either in the LLC’s formation documents (depending on the state) or, more commonly, in the operating agreement.
Key Features of Manager-managed LLCs:
Limited Member Involvement: Only Managers make operational decisions.
Delegation: Members can focus on other investments or businesses.
Flexibility: You can hire non-Members as Managers.
Member-managed LLC by default
In states without LLC management specified on formation documents or in an operating agreement, the default is member-managed, per state statute.
What is an LLC Member?
An LLC member is an owner. Members can own any percentage of the LLC, from 5% to 100%. All states permit single-member LLCs (one owner) and multi-member LLCs (two or more owners). There’s no limit to the number of members, except for LLCs electing S-Corp tax status with the IRS, which are capped at 100 shareholders.
What is an LLC Manager?
An LLC manager differs from a general manager or other managerial roles. The LLC manager is a specific position defined by state LLC laws. Members elect the LLC manager, who then represents the LLC in contracts and agreements, overseeing daily operations.
An LLC Manager is elected by the LLC Member(s) to bind the LLC in contracts and agreements and run the day-to-day operations.
LLC Management
LLC management involves having the legal authority to bind the LLC to contracts and agreements, and to oversee its operations. This includes making legal and financial decisions, opening bank accounts, entering into contracts, buying and selling assets (real estate, vehicles, investments, etc.), disposing of assets, borrowing money, and hiring personnel. Managers have a fiduciary duty to act in the best interests of the LLC.
Choosing Between Member-managed and Manager-managed LLC
When deciding which structure is right for your LLC, consider the following factors:
Involvement Level: Do you want all Members to be involved, or would you prefer to delegate?
Business Size: Small businesses often opt for Member-managed, while larger entities may benefit from Manager-managed.
Expertise: If certain Members lack expertise in operations, consider hiring a Manager.
Management Structures in Detail
Internal Manager-managed LLC
In an Internal Manager-managed LLC, some Members choose not to participate in daily operations. Instead, they appoint other Members as Managers.
Example: A four-member real estate LLC where two Members handle finances, while the other two manage properties.
External Manager-managed LLC
An External Manager-managed LLC has Members who hire outside Managers to run the business.
Example: Members living out of state hiring a local expert to manage their rental properties.
Hybrid Manager-managed LLC
A Hybrid Manager-managed LLC combines both Internal and External Managers. Members can be Managers, and external experts can also be brought in.
How Single-Member LLCs Are Managed
Most Single-Member LLCs are Member-managed for simplicity. However, they can also choose a Manager-managed structure if privacy is a concern.
Common Questions About LLC Management
A Member-managed LLC is when all of the LLC Members (owners) have the ability to bind the LLC in contracts
1. Can Members make decisions in a Manager-managed LLC?
Members can advise Managers but cannot make operational decisions unless specified in the Operating Agreement.
2. Are Operating Agreements necessary?
While not legally required, having an Operating Agreement is highly recommended to clarify roles and responsibilities.
3. What happens if I want to change management structures?
Changes require agreement among Members and should be documented in writing.
and agreements, as well as take part in the day-to-day business and operations.
Most small businesses choose for their LLC to be Member-managed.
The Importance of Operating Agreements
An Operating Agreement outlines how your LLC will operate, including management structures, decision-making processes, and roles of Members and Managers.
You can download templates for both Member-managed and Manager-managed Operating Agreements for free.
Member-managed LLC Operating Agreement
Our Member-managed LLC Operating Agreement template is available in 3 formats:
- Member-managed LLC Operating Agreement (Word)
- Member-managed LLC Operating Agreement (PDF)
- Member-managed LLC Operating Agreement (Google Docs > “make a copy”)
Manager-managed LLC Operating Agreement
If your LLC will be Manager-managed, you can download the Operating Agreement template below.
Their Manager-managed LLC Operating Agreement template is available in 2 formats:
- Manager-managed LLC Operating Agreement (Word)
- Manager-managed LLC Operating Agreement (Google Docs > “make a copy”)
Member-managed and manager-managed LLC operating agreements do not require notarization. A signed agreement is legally binding.
Binding Contracts in a Manager-managed LLC
In manager-managed LLCs, only managers can bind the LLC to contracts. Members, who don’t participate in daily operations, cannot. While members can advise managers, managers aren’t obligated to heed that advice (unless the operating agreement specifies otherwise). However, members retain power; unanimous written consent among them allows for manager removal and replacement. The operating agreement dictates specific details.
I want someone to sign documents for the LLC, but I don’t want to make them a manager.
You can have someone sign for your LLC without making them a manager. This person, often called an authorized party or authorized individual, gains signing authority through a resolution or authorization agreement. This approach is generally more restrictive than having an LLC manager. We currently don’t offer downloadable templates for these documents, but recommend consulting an attorney for assistance.
Operating Agreement Downloads for Member-managed and Manager-managed LLCs
Member-managed LLC Operating Agreement
Our Member-managed LLC Operating Agreement template is available in 3 formats:
- Member-managed LLC Operating Agreement (Word)
- Member-managed LLC Operating Agreement (PDF)
- Member-managed LLC Operating Agreement (Google Docs > “make a copy”)
Manager-managed LLC Operating Agreement
If your LLC will be Manager-managed, you can download the Operating Agreement template below.
Their Manager-managed LLC Operating Agreement template is available in 2 formats:
- Manager-managed LLC Operating Agreement (Word)
- Manager-managed LLC Operating Agreement (Google Docs > “make a copy”)
Operating Agreements don’t need to be notarized
Both Member-managed LLC Operating Agreements and Manager-managed Operating Agreements don’t need to be notarized.
Once the Members and/or Managers sign the Operating Agreement, it’s a legally binding document.
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