What is Member-managed vs. Manager-managed?

When forming a Limited Liability Company (LLC), one must choose who will be responsible for managing the operations of the company. LLCs are managed by either its members or by a manager(s) and are, therefore, either member-managed or manager-managed. Some entrepreneurs know which form they want for their business from the start while other don’t know which would be best and don’t know how to come to the right decision.  Consulting with a knowledgeable Silicon Valley corporate attorney will allow the entrepreneur to understand every avenue for their company and reassures them that their business is moving forward in the right direction.


Member-managed LLCs

In forming an LLC, the “members” are the owners of the company. In a member-managed LLC, the members of the LLC are actively involved in the running of the LLC’s business. It is the members who handle the day-to-day running of the company and share in the responsibility for management decisions.

Member-managed LLCs are a common choice, especially for small businesses. This structure allows owners of a smaller company to have the protections of being an LLC while still being directly involved in daily operations.

Manager-managed LLCs

The alternative to member-managed LLCs is the manager-managed form. In this structure, the owners of the company are generally not involved in the operation of the business and rather vest that responsibility into an appointed manager(s) who may also be a member or may have no member association with the company.  Members who are not designated to be managers are simply passive investors.

A manager-managed model is used less often than a member-managed model but can be more beneficial in a few circumstances. For example, if not all members want to be involved in daily operations but are interested in making an investment into the company, a manager-managed model would allow them to do so. Manager-managed options might also be preferable for larger companies for whom it would be difficult or impossible to include all members in the management process.

Making A Choice

The decision to form your LLC as member-managed or manager-managed will need to be reflected in the formation documents. A company’s operating agreement is an important tool that will set out the rights, responsibilities, and expectations of whoever is managing the LLC. What needs to be included in the operating agreement will vary based on which model you have chosen. Properly drafting these documents is critical to avoiding problems or gridlock in management down the road.

Call a Local Silicon Valley Corporate Attorney Today

The Silicon Valley corporate attorneys at Structure Law Group, LLP have the experience and knowledge needed to help guide you through this process of forming an entity and ensure that your LLC is set up for success. Call us at 408-441-7500 or fill out our online contact form today.