Differences Between Member And Manager Managed LLCs
There are a number of benefits to starting an LLC over a traditional corporation. But once you opt for an LLC, the decision-making process isn’t over. You still need to decide whether you will be an LLC that is member or manager managed.
First, it may help to understand that the owner of an LLC-or multiple owners-are called members. Florida law allows there to be multiple members to an LLC. There are pros and cons to having a single or multiple member LLC, including tax ramifications depending on which you choose.
Multiple Member LLCs
Multiple owner-or multiple member-LLCs are unique in that every member will have some say in the way the business is run, and the activities of the LLC. This kind of LLC allows for more direct control, and eliminates what may be seen as the bureaucracy of larger companies or LLCs. Many artisans-artists, cooks, woodworkers, or inventors choose this kind of LLC, as they want to be involved in the daily operations of the LLC.
Your membership or operating agreement will have specific details, such as whether a particular action requires a majority, 2/3, unanimous, or some other vote. In most cases, major decisions have to be approved by a majority of members.
When there are multiple members, the law assumes that the LLC is member managed, if not otherwise specified. That’s because the “default” position is that all members want to have a say in how the business is run. This is important to know if your operating agreement is silent on this topic, and you have multiple owners or members.
Manager Managed LLCs
Often, an LLC may have multiple members. Many may have contributed to the business, and have an ownership stake in the business. But many members may not want to participate in the regular decision making of the company. There may be so many members, it is unwieldy to allow all members to vote.
This is why the manager managed LLC exists.
In this kind of LLC, members delegate the authority to run the company to one, or a small group, of managers. They can even delegate authority to run the LLC to others who are not members—say, someone who is a talented executive, but who is just a salaried officer/employee, with no stake in the outcome of the company the way that an owner/member has.
Another company or a separate LLC can even manage the LLC, so long as there is no conflict of interest.
As you can see, there are a lot of details to be resolved, especially when manager managed LLCs are concerned. What powers, duties and responsibilities do the managers have? When is a vote of all the membership needed? How is a manager hired or fired? What are the job duties of each manager? These are all details that will be included in your operating agreement.
Call the West Palm Beach business litigation lawyers at Pike & Lustig for help setting up your company, and for help reviewing your corporate documents.