In this week’s Freedom Friday blog, I’m going to bring up a topic that I have touched on before, and that is the difference between a member and a manager in an LLC. When a client asks for my assistance in forming an LLC, and there is more than one member, the owners of the LLC need to decide whether the LLC will be member-managed or manager-managed. So, in today’s Freedom Friday blog and email newsletter, I’m answering the question, “What is the difference between a member and a manager in an LLC?”
First of all, the owner(s) of an LLC are called “member(s).” The term “single-member LLC” has one member or owner. Likewise, a “multi-member” LLC has more than one member, or owner. If an LLC is member-managed, then all the members (owners) of the LLC are involved in the day-to-day operations of the company. If an LLC is manager-managed, then the member(s) have appointed a manager or managers to manage the day-to-day operations of the company. The manager may be one of the member(s) of the LLC, but he or she doesn’t have to be a member; the member(s) can appoint a third-party (non-member) to manage the LLC.
Member-managed LLCs are the most common, especially with single-member LLCs. This is the right choice if all of the members (owners) will be actively involved in the management and operations of the business. If you’re starting a business with a business partner, and both of you wish to handle the management and daily decisions for the LLC, then you will want your LLC to be a member-managed LLC. Almost all single-member LLCs are member-managed LLC, at least when they start out.
Manager-managed LLCs are the right choice when one or more of the members (owners) are only investors providing financial support and do not wish to be involved in the day-day operations of the company. This is especially true if one or more of the members (owners) do not have the knowledge and/or experience to be involved in management or simply do not want to be bothered with that role. In this case, the members (owners) need to select a manager or managers for the LLC. While in some situations the members of the LLC may appoint a board of directors to manage the LLC, it is much more common for the members (owners) to appoint a single manager for the LLC, and many times it is the member (owner) with the largest investment.
As always, it is best to consult with a business attorney before making any of these kinds of decisions when starting your business. Many attorneys, including myself at Liberty Legal Solutions, LLC, charge a reasonable flat fee to help set up your LLC and draft your Operating Agreement. The costs of paying for an attorney when starting your business will likely save you time and money in the long run and get your business started on the right foot.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.