LLC Basic Structure

When forming an LLC, you’ll need to decide on the management structure, which can be either member-managed or manager-managed. Understanding these options is key to ensuring your business runs smoothly and efficiently.

Member-Managed LLC

The member-managed LLC structure is the default setup for an LLC, meaning all members are actively involved in the day-to-day operations of the business. This structure is most common for small businesses, particularly single-member or small multi-member LLCs, where all members are willing and able to contribute to business decisions and operations.

Member Roles:

• Owners of the business: LLC members are owners who have contributed capital in the form of money, services, or property.
• Active participation: In a member-managed structure, each member has an active role, and they typically share responsibilities such as decision-making, running operations, managing finances, and more.

Manager-Managed LLC

A manager-managed LLC is an option when members prefer to appoint one or more managers to oversee the day-to-day operations of the business, rather than being actively involved themselves. This option is ideal for businesses with multiple owners or where some members prefer to remain passive investors.

When to Consider Manager-Managed:

• Passive investors: If some members prefer not to participate in the daily operations but still hold ownership, a manager-managed structure allows them to invest without being involved in management.
• Large membership: With a large number of members, decision-making can become complicated. Appointing a smaller group of managers can simplify operations.
• Skills mismatch: If some members lack managerial experience, appointing an experienced manager or management team can ensure the business is run effectively.
• Business growth: As your business expands, you may want to bring in an experienced manager to handle operations while you focus on strategic decisions.
• Multiple locations: If your LLC has multiple branches or locations, hiring managers can streamline operations and ensure consistency across different locations.

Manager vs. Member

• Member: As an LLC member, you are an owner and have rights to profits, voting rights, and the ability to make major decisions. Each member’s contribution (whether monetary, service, or assets) secures their stake in the company.
• Manager: A manager is responsible for the daily operations of the LLC. The manager can be a member of the LLC or an external party. Managers may also handle decision-making and are typically chosen for their management expertise.

Single-Member LLC Responsibilities

Even for single-member LLCs, the choice of management structure remains important. Although many single-member LLCs opt for a member-managed structure, bringing in a third-party manager may help with balancing the workload, especially as the business grows.

Key responsibilities for a single-member LLC include:

• Managing daily operations
• Filing formation documents
• Drafting and maintaining an operating agreement
• Keeping personal and business finances separate
• Filing annual state reports
• Handling business contracts, licenses, and renewals

For those who feel overwhelmed by the demands of managing all these tasks alone, hiring a third-party manager can relieve some of the load and allow the business to run more smoothly.

Conclusion

Choosing the right management structure for your LLC is a vital decision that impacts how the business will operate. Member-managed LLCs are often ideal for smaller businesses or those with active participation from all members, while manager-managed LLCs provide flexibility for larger businesses, passive investors, and those in need of managerial expertise. Whether you’re forming a single-member LLC or a multi-member LLC, the management structure should align with your business needs and goals.