When registering an LLC, there is one question that stumps new business owners more than the rest: Will your LLC be member-managed or manager-managed?
I get the most questions on this topic.
What is a member?
What if I'm the only owner and I'm running the business?
What are the consequences of one option over the other?
Allow me to explain...
First, "member" is the legal term for an owner of an LLC.
A "sole-member" or "single member" LLC is an LLC owned by one person.
A "multi-member" LLC is an LLC with multiple owners.
Now let's turn to the management of your LLC.
A "member-managed" LLC is run by the owner or owners of the LLC. Members must vote on major decisions, but all of them have the power to act on behalf of the company.
When I register an LLC, if I say that the LLC is member-managed, I have to list the names of all of the members (aka owners).
A "manager-managed" LLC is run by a manger that the members elect - it doesn't have to be one of the owners, but it can be. The manager has the authority to run the business, including entering into contracts, hiring, firing, taking loans, etc. (unless the Company Agreement says otherwise).
If I say that an LLC is manager-managed, I list the name(s) of the manager(s). The members can stay anonymous.
Down the road, if a company adds or removes members - a member-managed LLC will have to update their records with the Secretary of State.
A manager-managed LLC will need to update the Secretary of State records only if the manager changes.
What about the sole-member LLCs?
If you're the only owner of your LLC, and you plan to manage your LLC on your own, you can take your pick - member-managed or manager-managed, it's up to you.
The benefit of a member-managed LLC - you don't have to define the manager role in your internal company documents.
The benefit of a manager-managed LLC - if you bring in a manager down the road, the manager role is already defined. Keep in mind, when I use the term "manager" here, it's a legal term that refers to the person running your business at the highest level. This person has much more authority than, for example, a store manager.
(PRO TIP: when you register your LLC with The Corporate Legal, we provide a company agreement that defines the manager role for you if you elect to register a manager-managed LLC).
Now you have all the legal terms to help you make the best management decision for your business. And if you have any additional questions, don't hesitate to reach out at admin@thecorporatelegal.com)
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