Should my LLC be Member Managed or Manager Managed?
You may be wondering what would make more sense for your limited liability company (LLC); should it be managed by a member?
Or would it be better to have it managed by a dedicated manager?
There are key differences between the two that would make one management structure more appropriate for your business than the other.
Certain states will require you to declare your LLC’s management structure when forming your LLC.
You will have to designate your limited liability company as either member managed or manager managed.
Let’s learn about the two management structures so that you can decided which one best fits your business.
A member managed limited liability company
Simply put, a limited liability company that is classified as “member managed” has every member involved in the LLC.
Each member equally acts as the business’ manager.
Limited liability companies that are managed by members (also known as business owners) take on managerial discretion over their business entity.
There are individuals who opt to have a member managed limited liability company for instances where they would like to achieve the highest level of anonymity in investments they make which are typically passive in nature.
An example to illustrate this is when it comes to real estate investors that are seeking to obtain property for rentals.
It is customary for the real estate investor to form a limited liability company designated as being member managed in the state where the rental property is situated.
There are some real estate investors that use the strategy of having their limited liability company member – who also functions as a manager – be a holding company or LLC in Wyoming as it tends to offer high levels of charging order protection while simultaneously allowing the anonymous filing of business entities.
By making the rental property limited liability company specific to the state, the business will continue being member managed with the only external link being the LLC in Wyoming.
If anyone will look into that Wyoming limited liability company by collecting its public records from the website of the secretary of state, the information that would show up would not reflect the real estate investor as an individual which will help to continue protecting that investor’s privacy.
The listing that will be available through the secretary of state will only reflect the organizer or organizers of the rental property limited liability company.
There are services available that can set this up for your limited liability company.
A manager managed limited liability company
A limited liability company that has a manager managed structure can either have its own members act as the business’ manager or, an external third party that is not a member at all can be the one to act as the business’ manager.
Nonmember managers can span from being an individual to being a business entity.
Manager managed limited liability companies are more common when easily knowing who is capable of making decisions on behalf of the company is important.
In these kinds of scenarios, the limited liability company formed is often an investment that is active in nature.
The limited liability company is organized and formed with the member or members tasked to act as managers listed publicly if a business entity is not the one managing the business for the members.
A joint venture or a flip project could be done under a limited liability company that is manager managed.
When more than one owner is involved, the limited liability company is now classified as a multiple member LLC.
You and your business partner involved in a joint venture or flip project can both be listed as managers.
In case documents need to be signed or in case someone requests for a form of verification, it would be evident that both you and your business partner are managers of the same business.
When possessing management capacity within the company, the business owner is not representing themselves personally but rather, they represent the LLC.
When an individual represents themselves as an LLC’s manager, the power to bind the business is given to that individual.
Despite that power, an individual that stands as the manager of an LLC does not automatically elect that manager as an owner or a member of the limited liability company.
In certain cases, businesses are after this type of separation when conducting their operations.
Limited liability companies can have two management structures that they can choose to designate from which most states will require when filing articles of organization.
LLCs can be managed by its own members who act with managerial discretion or, it can be managed by an external nonmember entity with some businesses choosing to combine both member and nonmember managers in its structures.
For member managed limited liability companies, anonymity is possible to protect the business owner’s privacy.
Meanwhile, manager managed limited liability companies benefit from separating managerial duties from ownership rights.
In a limited liability company that is managed by its own members, the members who also stand as the business’ managers will have to sign upon designation that they are in fact owners of the business.
Member managed LLCs tend to be formed for passive investments or businesses.
On the other hand, active businesses where qualified nonmember managers are involved are classified as a manager managed limited liability company.
Again, business entities that aim for the highest levels of privacy protection to prevent their personal details from being made publicly available could consider looking into forming a limited liability company that is member managed so the listing information on it could always link back to a designated holding company that is specific to the state.
Any questions, concerns, or clarifications you may have can be answered by scheduling an appointment to consult with licensed attorneys who have the necessary industry experience.
It is recommended to take advantage of content that is available on legal, business and tax advisor websites to help deepen your understanding though it does not substitute for the advice of a qualified professional that has looked into your individual case.
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