Managing an LLC
UPDATED: February 8, 2020
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A limited liability company may be managed however you like. When you set up a limited liability company (LLC for short), you create an operating agreement that will determine the management structure of the company. It should contain sufficient explanation of how members will manage the LLC, how managers are elected, and how managers will vote on operating and managing the business.
Limited Liability Company Structures
There are two basic LLC structures: member-managed and manager-managed. Most LLCs are member-managed; this means that all the members jointly run the business. Many small businesses follow this structure. Member managed is the simplest structure and means that every member has the authority to act on behalf of the business. If all your members will have direct involvement in the management of the company, then a member-managed LLC usually makes the most sense.
Internally, the members will need to agree on how and when they will vote on certain matters of the LLC. They should also have an agreement that no member will act on behalf of the LLC until the proper votes are obtained.
Understanding Manager-Managed LLCs
Some LLCs are manager-managed. This means that they designate one or more members to be managers or perhaps they hire one or more outside managers. It's possible, as well, to have an LLC that is managed by a combination of members and outside managers.
A manager-managed LLC is generally used when there are passive members in the LLC. Passive means investors in the LLC who do not actively manage or otherwise operate the business of the limited liability company. It could also mean members who contribute to the mission of the business, but are not interested in daily operations. If your limited liability company has passive members, it is usually recommended that you have a management layer between the members and the managers.
If you need help setting up a limited liability company, it makes economic sense to hire a business attorney to explain the state's relevant laws and regulations regarding this particular type of business structure.