In this article, we’re discussing member-managed vs manager-managed US LLCs.
This will include a direct comparison of both member and manager-managed LLCs, along with a discussion about the benefits of both.
This article is part of our free series on US LLCs, including the steps for opening a business bank account for an LLC, which you can access using this link.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Member Managed vs Manager Managed
- What Does Member-Managed LLC Mean?
- What Does Manager Managed LLC Mean?
- Frequently Asked Questions
- Ready to Explore Your Options?
Member-Managed vs Manager-Managed
The main difference between a member-managed and a manager-managed LLC is that members make the operating decisions in a member-managed LLC while professional managers make the operating decisions in a manager-managed LLC. With this in mind, it is possible for a member to be the manager of a US LLC.
That said, there are other differences that need to be taken into consideration when deciding between a member-managed vs a manager-managed US LLC. We’ll discuss these below including a breakdown of the tax implications for both member and manager-managed LLCs.
But first, let’s take a closer look at what a member-managed LLC really means.
What Does Member-Managed LLC Mean?
Member-managed LLC means a Limited Liability Company where the member (owner) also manages the activities of the business and is responsible for the day-to-day operations. Of course, like any business, members managing a member-managed LLC can outsource activities as long as they retain decision-making authority for the business.
With this understanding of member-managed in mind, let’s take a look at some of the reasons why you might choose a member-managed LLC instead of a manager-managed LLC.
Benefits of a Member-Managed LLC
There are several key benefits of a member-managed LLC, including:
- Generally the default LLC operating structure
- More straightforward to set up
- Easy option for small businesses
- Easy to understand and report
- Generally less expensive to operate
What Does Manager-Managed LLC Mean?
Manager-managed LLC means a Limited Liability Company where the member (owner) has decided to hand operational control of the business to a professional manager. This requires the business to then hire a professional manager
Member-managed LLC means a Limited Liability Company where the member (owner) also manages the activities of the business and is responsible for the day-to-day operations. Of course, like any business, members managing a member-managed LLC can outsource activities as long as they retain decision-making authority for the business.
Benefits of Manager-Managed LLCs
- Hiring professional management with the necessary experience
- Decisions can be made operationally instead of at the owner level
- Clear decision-making hierarchy and structure
- Often makes investors more comfortable with the trajectory
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Frequently Asked Questions
Below are three of the most common questions we receive from people to understand the difference between member-managed vs manager-managed. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Are Managers of a Manager-Managed LLC Also Members?
Managers of a manager-managed LLC are not usually members of the LLC. However, it is possible for a member to be a manager. That said, in most cases, manager-managed LLCs hire professional management to carry out the decision-making role for the business.
Can All Members of an LLC Be Managers?
Members of an LLC can be managers, this is true whether an LLC is registered as a member-managed LLC or a manager-managed LLC. As for the number of members that can be members, in most cases, there are no limitations in the governing law or regulations.
Home Many Managers Can an LLC Have?
An LLC can have as many managers as necessary. In most cases, when LLCS are registered the default structure is for every member to be considered a manager. However, it is not necessary to use this structure if the members prefer not to.
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