LLC Management Guide
Small business owners appreciate limited liability companies (LLCs) for their strong liability protection, management flexibility, prestige, and tax options. Whether you’re a sole proprietor looking to take the next step, or an entrepreneur just starting out on your small business journey, we’re here to help you understand the ins and outs of LLCs so you can make informed choices about how you do business.
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LLC Management 101
One of the best things about an LLC is that you get to decide how it’s managed. You can either run it yourself or pick someone else (or a group) to handle the day-to-day stuff.
It all starts with choosing a management style and figuring out how decisions will be made. That can be anything from who buys office supplies to big calls like expanding or closing the business. Setting clear roles and responsibilities upfront—usually in your LLC’s operating agreement—makes life easier and helps everyone stay on the same page.
Is Choosing an LLC Structure Important?
Your LLC’s management setup affects everything from daily tasks to long-term growth. Without a clear structure, it’s easy for things to get messy or overlooked. Here’s why picking the right structure is so important:
It defines who does what.
Ever had a task not get done because no one knew who was in charge? That’s what a clear management structure helps prevent. When everyone knows their role and responsibilities, things run smoother and there’s less confusion.
It makes decisions easier.
With a set structure, your team knows exactly who can make decisions—big or small. This avoids unnecessary conflict and keeps things moving. It also keeps less involved members from getting pulled into choices they don’t want to deal with.
It sets you up to grow.
A well-organized structure makes it easier to scale. Whether you’re hiring, opening new locations, or making big purchases, your team will know who’s in charge of what. That means fewer delays and more focus on what really matters.
It keeps you compliant and organized.
Many states ask for your management structure when you register your LLC. Deciding early helps you give accurate info and stay on top of paperwork. Plus, it makes things way easier when you’re opening bank accounts or setting up tools for your business.
How Does LLC Management Work?
When you form your LLC, you’ll have two choices for management structure:
Member-managed
All LLC members run the business together and take an active role in how the company functions.
Pro Tip: As the most common management structure, they require members or owners to handle every day management decisions instead of just chiming in on bigger issues.
Manager-managed
The LLC members hire a manager or manager(s) to run the business.
Pro Tip: This structure provides a more hands-off approach that involves appointing a manager to run the business on behalf of the members.
Member-Managed LLC vs. Manager-Managed LLC
The best management structure for your business depends entirely on how involved your owners or members want to be. Ready to dig deeper? Let’s see how these structures compare.
Key Features
| Member-Managed LLC | Manager-Managed LLC | |
|---|---|---|
| How It Works | All of the members of the LLC actively manage the business. | The members appoint one or more managers to run the business. |
| Who Makes Decisions | Members make decisions collectively, based on ownership percentage. | Managers make daily decisions; members make major decisions. |
| Who Can Manage Operations | All members have the authority to manage daily operations. | Managers (who could be members or outsiders) handle daily operations. |
| Who’s Involved | All members are actively involved in the business’s operations. | Members can step back from daily operations, leaving it to managers. |
Structure Benefits
| Member-Managed LLC | Manager-Managed LLC | |
|---|---|---|
| Simplicity | No need for a manager, making it easy for members to run the business. | Managers handle decisions, simplifying the process for members. |
| Control | Members have full control over business decisions without needing manager approval. | Managers make decisions on behalf of members, easing the management burden. |
| Clarity | All members are directly involved, so decision-making is transparent and clear. | Clear role division between members and managers helps define responsibilities. |
| Efficiency | N/A | Quick decision-making without needing all members involved. |
| Scaling | N/A | Easier to scale as roles for managers and members are defined. |
| Flexibility | N/A | Members can step in as managers if needed. |
Drawbacks
| Member-Managed LLC | Manager-Managed LLC | |
|---|---|---|
| Participation | All members must be involved in management, which can be challenging for passive investors. | Some members may feel disconnected from the business’s day-to-day decisions. |
| Conflict | With many people involved in decision-making, conflicts may arise. | Managers may make decisions that don’t always align with members’ visions. |
| Trust | N/A | Managers who aren’t members may not share the same vested interest in the company. |
| Ambiguity | N/A | Members might feel disconnected from daily operations, as decisions are handled by managers. |
Making Decisions
| Member-Managed LLC | Manager-Managed LLC | |
|---|---|---|
| Who Has the Authority | Members vote on decisions based on their ownership percentage, with all members involved. | Managers are given decision-making authority, while members make bigger decisions. |
| Best Fit For | Smaller businesses with active members. | Larger businesses or those with members who prefer not to be involved in daily operations. |
How Do I Choose A Management Structure?
There’s no right answer to this question, but let’s look at some other considerations that can help you decide which structure fits your business needs.
Complexity
- Do you have the time and skills to manage your business hands-on?
- Are the daily operations outside your area of expertise?
- Do you prefer a simple setup for a smaller business?
If you want a straightforward approach and can handle day-to-day management, a member-managed LLC might be best.
If your business needs more oversight, a manager-managed LLC with dedicated managers may be the way to go.
Members
- Do you have many members involved in your LLC?
- Do your members often disagree on business decisions?
- Would your members rather not be involved in daily operations?
If you have a large group of members or want to allow some to step back from decision-making, a manager-managed LLC might be better. This setup gives your team more flexibility and lets you appoint managers to handle the important stuff.
Involvement
- Will your members be actively involved in running the business?
- Do you want to take a hands-on role in managing employees and daily tasks?
- Are you hoping to attract passive investors or partners?
If you prefer a more hands-on approach and want everyone involved, a member-managed LLC is a good choice.
If you’d rather step back and let someone else handle the daily grind, a manager-managed LLC might open doors for other leaders to run things while you focus on bigger-picture goals.
Growth
- Is your business still small and figuring things out?
- Are you okay with sticking to the daily hustle and growth being gradual?
- Or are you planning to scale quickly and bring in a lot of new employees and resources?
For businesses with a smaller, more hands-on approach, a member-managed LLC can work well.
If you’re planning for rapid growth and need to bring in extra leadership, a manager-managed LLC could provide the structure to scale faster and delegate more responsibilities.
What are my next steps?
Form and maintain your LLC.
Submit your LLC formation filing and develop an operating agreement to detail your management structure.
Assess business needs and goals.
Have an honest chat with members about the current and future needs of the business to find the best fit.
Hire professionals to help.
Hire filing professionals and specialists to help keep your business in compliance with expert knowledge.
Revisit your structure and evolve.
Periodically revisit your current management structure and align with your LLC’s peaks and valleys.
Now you’re ready to manage your business. Ready to form your new LLC today?
Frequently Asked Questions
Can an LLC switch from member-managed to manager-managed?
Yes, you can change your management structure at any time within the operating agreement. It may also be necessary to change your state entity records to reflect these updates, so be sure to check with your local Secretary of State or equivalent agency.
Can a manager-managed LLC have multiple managers?
Yes, this is very common. Most businesses with this structure rely on managers for different departments as well as independent managers in charge of specific business dealings.
How does the management structure impact LLC taxes?
Taxes can be impacted for members acting as managers, since they must file self-employment taxes annually. Similarly, non-acting members may actually qualify as investors, which may have additional reporting requirements. For more specifics, you’ll need to check with your CPA or business advisor.
Can a member be both an owner and a manager in a manager-managed LLC?
Yes, members can take an active leadership role in their company as long in accordance with the LLC’s operating agreement. Members who do this usually have to report self-employment taxes every year, so be sure to check out whether this applies.
What happens if a manager-managed LLC doesn’t have a formal manager?
Chaos and confusion, mostly. Since the operating agreement defers to managers to make decisions in a manager-managed LLC, there would be no authority to make these decisions. In the event that your LLC loses a manager, it could be beneficial to draft a new operating agreement that assigns this authority back to the members.
Are there any limitations on the powers of managers?
This really depends on the verbiage included in the operating agreement. This document provides all the details on who has the power to do what. Some operating agreements give managers complete power over everyday decisions. Others give contingent powers to members to override a manager’s decisions. Since your operating agreement should reflect your business needs, the decision is ultimately in the hands of the members.