Looking to protect your assets and simplify the process of starting a business? Look no further than the Limited Liability Company (L.L.C.). This versatile business structure offers limited liability protection, making it a popular choice among entrepreneurs and business owners. With fewer paperwork requirements and an easier setup process, an L.L.C. allows you to focus on growing your business.
Whether you’re a small “Mom and Pop” operation or a larger company with multiple members, there’s an L.L.C. that fits your needs. But that’s not all – you’ll also get to choose between two management structures: member-managed or manager-managed.
Whomever is in charge of the company’s management will have the authority to make the following important decisions:
- Manage employees by firing or hiring them.
- Opening and closing commercial bank accounts
- Purchase or sell business assets such as vehicles, equipment, etc.
- Sign legally binding contracts and agreements
- Get business loans through the LLC.
Let’s shed more light on what the manager-managed and member-managed structures are all about to help you make a decision!
What Is a Manager-Managed LLC?
The operational control of a manager-managed LLC is delegated to designated managers. Members of an LLC can frequently vote on important issues, but they do not act as company managers and are not considered agents. When some members prefer to be passive investors in the business, a manager-managed structure is common. If the LLC delegates management responsibilities to one or more other members, these owners are often more at ease. There is no set limit for the number of managers in an LLC, but it is typically much lower than the number of members.
Other circumstances in which LLC owners might prefer a manager-management structure include:
- A situation where your ownership or company is too diverse or large to allow for effective management sharing among all members.
- A situation where some of your members lack management skills.
Pros of Manager-Managed LLC
- Makes it simple for investors to invest passively in the business.
- Managers can make quick decisions without seeking approval from all owners, thus making large LLCs operate faster due to centralized decision-making.
Cons of Manager-Managed LLC
- All owners do not have a say in management decisions.
- A professional manager may not be as familiar with the business as the owners.
- A professional manager must be paid, which can be difficult for small and fledgling businesses.
What is a Member-Managed LLC?
It is a management structure in which all members share responsibility for the business’s day-to-day operations. This structure is more common because most LLCs are small businesses with limited resources; thus, they do not require a separate management level to function. If you and your fellow LLC members want to run your own business, such as providing services or manufacturing and selling products, you’ll need a member-management structure for your LLC.
By default, LLCs in most states are member-managed under state law. If you don’t specify a management structure for your LLC in your operating agreement or formation documents, it will be treated as a member-managed organization.
Pros of Member-Managed LLC
- Every member has a say in management decisions.
- It is an excellent option for brick-and-mortar establishments and retailers
- Its a less complicated structure.
Cons of Member-Managed LLC
- It can be difficult to keep all legalities, financials, and track of all decisions in order when there are multiple members.
- Managing an LLC can be time-consuming, leaving members unable to make critical strategic decisions.
Final Thoughts
Decision-making responsibilities in LLCs typically correspond to degrees of obligation to the company. It is especially true when deciding whether to form your LLC as a manager-managed or member-managed entity. There is no one correct answer since the choice is influenced by the nature of the business and the strengths and desires of its members. Ensure you give it enough thought to make the best decision possible, as it will have significant legal, practical, and financial implications for your company’s growth. Visit this recommended resource to enjoy the peace of mind of making the right decision on the best L.L.C. management structure for your business success!
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