One of the most essential considerations you’ll have to make when founding a limited liability corporation (LLC) is how the firm will be administered.
LLCs are divided into two types of management structures: member-managed and manager-managed.
Table of Contents
Members’ Management
When an LLC should have a member-managed structure, it is because:
The number of LLC members is limited.
The members are capable — and eager — to participate in the day-to-day operations of the company.
How Does a Member-Managed Structure Appear?
The members of a member-managed LLC are actively involved in the company’s activities. Each member has a voice in both everyday operations and big-picture matters, and all key business decisions need a vote.
Because administrative authority is distributed among the members rather than concentrated in the hands of one or more managers, this LLC form is frequently referred to as “decentralized management.”
Consider the following scenario:
Michael and Melissa Thompson, a married couple, decide to open a bed-and-breakfast together. They want to form an LLC and share equal responsibilities for operating the firm. Michael and Melissa would wish to remain the sole members rather than hiring outside management, therefore they choose a member-managed LLC structure.
Managers’ Management
When an LLC should have a manager-managed structure, it is because:
The number of members in an LLC is rather significant.
Members do not want to be engaged in the day-to-day operations of the company.
How Does a Manager-Managed Structure Appear?
In a manager-managed LLC, the members acknowledge that delegating administrative authority to one or more designated managers is a more efficient approach to conduct their company’s day-to-day operations. Manager-managed LLCs do not require members to vote on all business decisions, but instead delegate power to the manager(s).
Because it concentrates administrative control in the hands of one or more managers, this LLC form is also referred to as “centralized management.”
Consider the following scenario:
A religious group of forty people decides to start a neighborhood store selling religious literature, clothes, movies, and other goods. The majority of the members work full-time and have no prior business experience. For these reasons, they elect to choose another congregation member to operate the company in return for an annual compensation. In this instance, a manager-managed LLC structure is the best choice.
Conclusion
Choosing a management structure for your LLC is a critical undertaking, so take your time and thoroughly explore your possibilities.
Before you put anything in ink, you and your colleagues should know the answers to the following three questions:
How many employees does the company have?
What amount of participation may members have in the day-to-day operations of the business?
What rights and duties do the members seek in terms of the company’s overall affairs?
Copy and paste this <iframe> into your site. It renders a lightweight card.
Preview loads from ?cta_embed=1 on this post.