Member Managed vs Manager Managed LLCs

FREE OPERATING AGREEMENT TEMPLATE: https://drive.google.com/file/d/1e8SHSTMyoz78g89i81QynUJgRj4Jq8PO/view?usp=sharing

This video is going to cover the difference between a Member-managed LLC and a Manager Managed LLC:

A member-managed LLC places management authority in the owners of the LLC (called “members:”). Each owner has a voice in decision-making.
Depending on the specifics of the operating agreement, the owners might have equal say, or authority might be proportional to the level of ownership in the business.

For instance, a partner who owns 40% of the LLC could have twice as much say as a partner who owns 20% of the LLC.

In a member-managed LLC, each owner is an agent of the LLC and has the power to bind co-owners by signing company contracts, borrowing money and making other decisions. But members must vote to approve such decisions.

This is the right choice for your business if you and your owners want to be actively involved in the company’s affairs. For instance, let’s say you jointly own an e-commerce business with one other person. You want to be involved with launching and running the website, and your co-owners want to handle marketing and pricing. Since you both are actively involved in operating the business, you should opt for a member-managed LLC.

Member-managed LLCs are more common than manager-managed LLCs.
In fact, in most states, member-managed LLCs are the default management structure. If you don’t specify a management structure in your LLC operating agreement, you’re by default a member-managed LLC.
A member-managed LLC generally also costs less to operate because it doesn’t have officers or a board of directors the way a corporation would.

Manager-managed LLC

In a manager-managed LLC, the owners elect a manager or managers to handle day-to-day business decisions.

Members still retain authority over some things, such as dissolving the company. That said, the manager is the main legal agent of the LLC and can quickly make decisions on behalf of the business without waiting for all members to approve.

There could be one manager or multiple, and the manager could be a member (but need not be). If the manager isn’t a member, they are called a professional manager. The managers act as a board of directors would for a corporation.

Manager management is appropriate when an LLC has investors. Most investors are passive investors or “silent partners.” This means they own a portion of the business but don’t have the time or expertise to make day-to-day decisions.

In this case, members can vote for the most knowledgeable people to be the managers. For instance, in a family-owned business, parents can keep management authority in their hands while entrusting their children with some ownership of the business.

Let’s say you and your business partner in the e-commerce company attract money from two investors. Now you, your partner and the two investors are members of the company because you each have an ownership stake. But all the members can vote to make you and your partner the LLC managers. That way, you or your partner can quickly make business decisions without having to get consensus from others.

A manager-managed LLC is also helpful if you have a larger company with many owners.

This is usually a better choice when you company has more than 5 members because it can become very difficult to get everyone together to vote on management decisions.

It’s better to delegate management responsibility — which can amount to a full-time job — to a few of the members or to a professional manager.

In the description of this video, you will find an up to date operating agreement template that you can use and tailor to your companies operations.

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