There are two options on how to manage your company:
When do companies normally have a member managed structure?
- small number of members
- close proximity of members to enable frequent meetings and document signing
What does a member-managed structure look like?
The members of the LLC are actively engaged in the company, management by the members may serve the company and members equally well. The idea here is that each of the members understands and has a say on the day-to-day affairs of the company. Decisions are made on issues as they arise by votes cast by all of the members.
Management by members is sometimes called "decentralized management," in that the managerial power remains in the hands of the members instead of being centralized in one or more managers.
Consider the following example:
Michael and Melissa Thompson decide to start a bed and breakfast together. They choose to form an LLC for their business, and they are the only members. As a married couple, they spend a lot of time together, and they want to share between them the responsibilities of managing their limited liability company. For this reason, they decide to follow the member-managed model for their business.
When do companies normally have manager managed structure?
- large number of members
- members do not wish to be involved in day-to-day management of the LLC
What does a manager-managed structure look like?
The idea here is that the members and the company recognize that specific managers may be able to more efficiently and effectively handle the day-to-day affairs of the company without the need to go to the members for votes.
Management by managers is sometimes called "centralized management," in that the managerial power is centralized in one or more managers.
Consider the following example:
A group of forty members of a religious community decide to start a local business that will sell religious books, clothing, movies, and other materials. Most of them have full-time jobs, and none of them have much experience running a business. They decide to form an LLC, and they appoint a different member of their congregation as a manager of the business, offering him an annual salary for the position. In this way, they choose to follow the manager-managed model for their business.
The decision of whether to form the limited liability company as a member or manager managed company is an important one, and should be made only after thinking about the type of business you want to start, the number of owners you will have, what roles the owners wish to have in the day-to-day operations of the company, and what rights and obligations the owners want regarding the affairs of the company.
Download a Free Sample Operating Agreement
Create a free account to download our operating agreement. Please keep in mind that this operating agreement is only meant as a reference.
To download: Upon logging into account scroll through the tiles of your DASHBOARD page. Select the "Free Legal Forms" tile. Press download icon for "Free Sample Operating Agreement".
There are often default rules in state laws providing that unless otherwise changed by articles of organization or an operating agreement, the form of management is one way or the other. If you have specific questions about the default rules in your state or whether your particular circumstances are best suited for one approach or the other, consider hiring a local attorney to assist in the creation of your limited liability company.