Question

How do member-managed and manager-managed LLC management structures differ?

Answer 1

1) In a member-managed LLC, all members (owners) are involved in decision-making.

Under a manager-managed structure, a manager role is created, which is separate from the ownership of the LLC. The owner has responsibility for high-level decisions while the manager(s) are able to do things that are required to run the business, including, but not limited to, hiring, firing, entering contracts on behalf of the business, and writing checks.

2) In a member-managed LLC, major decisions, such as loans and contracts, require a majority of the vote for approval. All members participate in the decision-making process of the LLC.

Whereas, in the case of manager-managed LLC, the dedicated manager does not need to get the approval of the investors to make decisions. However, the owner has the sole authority over major decisions such as merge or acquire another business, get a loan, and process other high-level transactions.

3) Member-managed LLC is good for owners of businesses who actually work in the business.  

A manager-managed LLC is a good option for an LLC with several members, with some members who want to invest only and not be involved in any decision-making processes.

4) Under member-managed LLC, all members may bind the LLC to contracts and to make day-to-day decisions regarding the operation of the LLC. Whereas, in Manager-managed LLC, only the managers may bind the LLC to contracts and participate in the day-to-day operation of the business.