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Choosing the right type of LLC can be a pivotal decision for your business, but how do you choose?
Don’t worry, I’m here to help! The first step to this process is understanding your options and weighing them against your business goals.
LLCs can be either member-managed or manager-managed, and we’ll dive into the specifics of each in this article.
As you read along, you’ll find definitions for both LLC types, a comparison between the two, and how to ultimately make the right LLC decision for your business.
Whether you’re a brand-new entrepreneur or a seasoned business owner, this article aims to help you strategize and pick the best business structure.
With Northwest Registered Agent, you can start an LLC, hire a registered agent, and maintain state-to-state business compliance.
Key Takeaways
- Member-managed LLCs (limited liability companies) are business structures that rely on active members (or owners) to run the day-to-day operations of the business.
- Conversely, manager-managed LLCs assign the day-to-day decision-making to managers, while the members handle big-picture ideas for the business.
- There are only a couple of differences between a member-managed LLC and a manager-managed LLC, mostly relating to company hierarchy.
- Overall, manager-managed LLC structures offer more flexibility, while member-managed LLCs enable members to be fully involved in all aspects of the business.
Member-Managed LLC
Member-managed LLCs (limited liability companies) are business structures that rely on active members (or owners) to run the day-to-day operations of the business.
This group of members also makes decisions about business goals and trajectories.
All members must have an equal voice in this business structure, which offers a collaboration-based approach to running a business.
Equally important is that as LLCs involve limited liability, all members are able to benefit from asset protection regardless of organizational debts and legal troubles.
Manager-Managed LLC
Conversely, manager-managed LLCs assign the day-to-day decision-making to managers while the members handle big-picture ideas for the business.
This structure has more control over who is able to (and responsible for) make decisions on behalf of the organization.
Liability protection is offered to all managers and members in this type of LLC.
However, the extent of these protections can vary depending on the state of operation and the LLC agreement (articles of organization).
What’s the difference between a member-managed and manager-managed LLC?
There are only a couple of differences between a member-managed LLC and a manager-managed LLC, mostly relating to company hierarchy.
Take a look at the chart below:
Manager-Managed LLC | Member-Managed LLC |
---|---|
Members oversee the business and take ownership of the decision-making process | Members oversee the business and take ownership of the decision-making process |
Managers handle the daily operations of the business | Members also manage the daily operations of the business |
Creates more discrete roles in a company | Flexibility in role designation |
Advantages & Disadvantages
The major advantages and disadvantages of both LLC types come from the delegation of work among members and managers.
Overall, manager-managed LLC structures offer more flexibility, while member-managed LLCs enable members to be fully involved in all aspects of the business.
Manager-managed LLC
Flexible allocation of work
Limited liability
Distinct roles
Only members can make big decisions
Member-managed LLC
Collaboration across members
Everyone can make big decisions
Limited management experience
Potentially more conflict
How to Choose: Member-Managed LLC vs. Manager-Managed LLC
Prior to deciding, you will want to hold a meeting and discuss your options with each member of your organization.
If there are people who are comfortable simply managing in your organization, then you may opt for the manager-managed configuration.
Next, the goals of your organization should be outlined, such as how many employees you expect to have and what day-to-day operations will look like.
If it is easy to manage both big and small tasks for the business, then having a structure involving only members might be suitable.
Member-managed LLC vs. Manager-managed LLC: Which option is best for you?
You have reached the end of this article on the differences between a member-managed and manager-managed LLC – nice work!
Be sure to check out the FAQ if you have additional questions about the logistics of either LLC type.
In general, choose a manager-managed LLC if you are concerned with who can make decisions in your organization.
Otherwise, a member-managed LLC may suit your needs. In this LLC type, every member is encouraged to work on both big-picture and detailed elements of the business.
FAQs
What are the tax implications for a member-managed vs. manager-managed?
Both LLC types are subject to pass-through taxation, which enables the business owners to pay taxes through their personal tax return.
Is there a difference in liability between a member-managed and a manager-managed LLC?
In general, no. However, it is important that you consult your state government and its rules for LLCs.
Members should be able to access the limited liability offered by LLC.
Do I need to document my LLC’s management structure?
You will need to document your LLC managerial setup through any documentation that you submit detailing the structure of your business.
Related reading:
With Northwest Registered Agent, you can start an LLC, hire a registered agent, and maintain state-to-state business compliance.