Manager Managed vs Member Managed

Did you know you have choices about how your LLC is managed when you file it with your Secretary of State? 

I'm gonna talk to you briefly about manager-managed and member-managed LLCs. Now my goal is to keep this short and sweet because it comes up a lot. I want you to read this, understand it, and move on with your organization. First off, an LLC is a limited liability company, we're not going to dig into those details. That’s in our previous blog post. But here are the key distinctions. In most states, when you register your LLC, you have to decide if it's member-managed or manager-managed. What does that mean? LLC has members, not owners. Remember–language matters. 

Member-Managed

Members are the people who have percentages of equity in the LLC. This is really important because this is how we refer to the ownership as a collective. If it is member-managed, that means all the members, all the people who have a percentage of equity, have management rights in that LLC. It is kind of a democracy so to speak. So, if you have three members in your LLC, it is member-managed, those three members have the right to manage that LLC and make those decisions. 

Manager-Managed

Now, if you are manager-managed, that means that you still have your members, but you're going to pick a member or two, no more than that, as a manager. This means that they have that title “Manager”. They have the authority to decide what happens in the company. Now, the other members in a manager-managed LLC do not have those rights and they don't have that authority.

Which One Do I File As?

Now, if you're starting to file your LLC, I always prefer to file them as manager-managed. If it's you and you decide to bring on a business partner, you grow, or you decide to give a little bit of equity, you can retain the management position. Now, if it's just you, and it will forever just be you and you're a member-managed, it probably doesn't matter. Most people want that flexibility to be able to grant ownership, bring in money, or have but retain some control and management of their LLC. 

When you're filing your LLC, you must determine if you are going to be manager- managed or member-managed, what the differences are, and how do we delegate those differences. That's all done in the operating agreement. For an operating agreement, we'll reserve that for another blog post. Hopefully this helped you to understand the difference between a manager-managed and member-managed LLC. If you have questions about what's right for you, reach out to us. We're always happy to help.