Considering a manager managed LLC for your business? This structure allows you to appoint managers to handle day-to-day operations, providing flexibility and potentially greater privacy for the LLC owners.
In this article, we’ll explore what a manager-managed LLC is in more depth, covering its benefits as well it’s who it’s suited for in order to help you decide if it’s the right choice for your company.
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What is a Manager Managed LLC
In a manager-managed LLC, the members surrender management duties to one or more appointed managers. While these managers can be other members of the LLC, there aren’t any laws requiring members to manage their own company.
One manager or a team of managers has control over the company’s daily activities instead of the members of the LLC, allowing the latter to take a more passive role. Non-managing members will still have authority in some areas (e.g., dissolution of the business) but managers have the ability to make management decisions without the approval of all members.
While some LLCs choose to have a single manager, others will employ a team of managers who act similarly to a corporation’s board of directors. Any managers that aren’t LLC members are referred to as a “professional manager”.
Most states require LLCs to explain their management structure in their Articles of Organization (also known as a Certificate of Formation or a Certificate of Organization). Be aware that no stipulation in your formation document will automatically result in your LLC being treated as member-managed in most states.
Note: How you manage your LLC also will determine the type of Operating Agreement you’ll use for your company.
Advantages of a Manager Managed LLC
Many people are drawn to forming manager managed LLCs for the following reasons:
- Better Suited for Larger Companies: It’s more challenging to make a decision with a large group of members vs. just a few. As such, it makes more sense to have one or a few managers making the day-to-day decisions for the LLC rather than trying to get all the members together to make a decision
- Company Structure: You can set up a manager-managed LLC with multiple managers to look and act like a traditional board of directors in a corporation. This can prove very valuable for owners who prefer the business structure of corporations, but want the flexibility and ease of an LLC
- Easier to Attract Investors: Some LLCs may want to take on investors at the time of formation or sometime in the future. Being structured as a manager-managed LLC can be a great way to attract investment as it allows passive investors to become part of the business as “silent partners” without being actively involved in the management of the LLC or its daily operations
Are LLC Managers Employees?
In most cases, the members of your Limited Liability Company (LLC) are considered owners — not employees. If one of the members of your company also acts as a manager, it’s possible for that individual to receive employee compensation.
If a member is employed as a manager, this role will remain separate from his or her role as an owner of the company. You should define this distinction in either your LLC Operating Agreement or in the employment agreement when hiring a company member as a manager.
By contrast, any professional manager you hire will always be considered an employee. Whether you hire a professional manager or allow a member to handle management duties for your LLC, you should provide them with a competitive salary and withhold federal income taxes — these are the taxes deducted to fund Medicare and Social Security programs.
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Member Managed vs Manager Managed LLC
When deciding whether a manager managed or member managed LLC is a better fit for your business, you should weigh several factors, including:
- Company Size: Smaller LLCs often favor a member-managed setup, whereas larger companies tend to opt for a manager management structure. As a company grows, having all members vote on every decision becomes increasingly impractical. Instead, appointing a smaller group of managers allows for quicker and more efficient decision-making
- Anonymity: If maintaining privacy is a priority for you or your associates, a manager-managed LLC structure is a better option. This setup requires only the managers’ names to be listed in public records, allowing the identities of all other members to stay confidential
- Ownership Style: If you or any of your partners prefer not to take an active role in running your LLC, a manager-managed LLC is a better option. This structure lets you appoint a small group of managers to handle the operational responsibilities on your behalf
Since choosing the management structure of your LLC is among the most important decisions you’ll make when starting your business, we always recommend consulting a business attorney.
For a more in-depth comparison of these two management structures, be sure to check out our Member Managed vs Manager Managed LLC.
Recommended: More than 84% of our readers form their LLC through a specialized LLC formation service in order to save time and avoid being caught up in procedural rigmarole.
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Manager Managed LLC FAQ
What does a manager-managed LLC mean?
A manager-managed LLC means that the members of the LLC have appointed one or more managers to oversee its daily operations. In this structure, the appointed managers have the authority to make decisions on behalf of the LLC, while the members take a more passive role.
For more information on this topic, we recommend checking out our Manager Managed LLC article.
Should my LLC be member-managed or manager-managed?
That depends on your LLC’s ownership and preferred management structure. Generally speaking, a member-management structure will work well for most businesses, though there are some scenarios in which a manager managed LLC makes more sense.
To help discover which of these structures is better suited to your business needs, see our Member Managed vs Manager Managed LLC article.
Should a single-member LLC be member-managed or manager-managed?
In most cases, single-member LLCs choose to be organized as member managed LLCs. But, some situations do exist in which creating a single-member LLC managed by managers makes sense.
For example, a single-member LLC might operate a store that needs a manager member to handle daily business operations like overseeing customer service or hiring employees.
How do I change managers for my LLC?
To change managers for your LLC, you first need the agreement of your LLC members. The specific process will depend on the rules and procedures outlined in your LLC’s Operating Agreement.
Typically, this involves holding a meeting of the members, voting on the change, and then updating your LLC Operating Agreement and any necessary state filings to reflect the updated LLC’s management structure.