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.