3

Upstate NY (USA) here, if it makes a difference. If you Google "llc member managed vs manager managed", you'll get 10,000 lame blogs that all say the same thing:

  • Member-Managed (more common): All members take part in day-to-day operations/management of the LLC; and
  • Manager-Managed (less common): Only a subset of members, or even non-members run the LLC day-to-day

But no where does one very important question get answered: is there a legal/enforceable difference between the two, or are they just conceptual?!?

Meaning:

  • Are there legal/procedural/financial differences?
  • Or, is it just a concept, and what the Operating Agreement states is what actually dictates who runs the LLC day-to-day?
  • Manager managed LLCs are much, much more common than member managed LLC, which should almost never be created. There are legal and enforceable differences between the two pertinent to legal duties and legal authority. – ohwilleke Mar 20 '18 at 2:52
3

On a day-to-day basis, there is no practical impact of the distinction between manager-managed vs. member-managed LLCs.

On a side note, I don't think the definitions in your question are accurate.

Member-managed simply means the manager is a member of the LLC. It doesn't mean ALL the members are actively involved in the management. Usually there is only one chief in charge. If that chief also happens to be a member of the LLC, then it's member-managed. If not, it's manager-managed.

Aside from accurate definitions, the only place I am aware it makes any difference is on some forms you fill out at the bank and at the IRS or state taxing authority. Otherwise, it's only conceptual. AFAIK.

  • Thanks @Mowzer (I'd upvote you if I had the rep to do so). I appreciate your correction on the differences, and agree with you, but that wasn't the focus of my question. I get the conceptual differences between them. What I'm really after is: when you say "There are operational differences"...**what are they?!?** You mention signing checks and opening accounts, but imply there are many more. Furthermore, I'm wondering if this is just convention, or if there is actual legislature that delineates operational differences. – Manny Rodriguez Dec 11 '15 at 18:56
  • OK that clears it up then :-) thank you! I'll leave this question open another day just to be fair to anyone else who might have a different answer, but thanks for the clarification!!! – Manny Rodriguez Dec 11 '15 at 18:58
0

There are several legal implications that distinguish member- and manager-managed LLCs, providing distinctions that are relevant for business owners deciding between formats.

As the more common of the two, member-managed LLCs involve all members taking part in day-to-day operations and management of the LLC. Conversely, a manager-managed LLC has only a specific group of members running the show. There's no variance in the day-to-day tasks of the two LLC types, though there are differences when it comes to paperwork.

Member-managed LLCs do not require a separate management level, resulting in fewer operating costs compared to manager-managed LLCs. When members of a business work directly with customers, as is often the case with clothing stores or restaurants, member-managed LLCs make the most sense.

Manager-managed LLCs are most beneficial when the members lack expertise or have roles that are not directly intertwined with the customer. In the case of a manager-managed LLC, a small and experienced group manages the company, helping provide more protection. A manager-managed LLC is ideal for a family business, with the older and more experienced members gradually bringing children into the business, though not handing over significant control or decision-making to them immediately.

Manager-managed LLCs tend to sit better with investors, who know those in charge of decision-making tend to work with more experience. Plus, a smaller and closer-knit group can make LLC goals more centralized and communication more open. Manager-managed LLCs offer shareholders a sense of protection, as a result.

When it comes to paperwork, most states establish LLCs as member-managed groups by default. If you want to make your LLC manager-managed, look to your state's specific guidelines for filling the correct paperwork to modify the default setting.

  • Member managed LLCs almost never make more sense. You can have a member managed LLC in which ever member is a manager, if need be. Member managed LLCs expose members to more liability and are less flexible. Also member managed LLCs are not more common, they are in fact, much, much less common. And there is a negligible difference in operating costs between the two. – ohwilleke Mar 20 '18 at 2:54

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.