Determining who will manage the day-to-day affairs of your business is an important decision. You must have clarity at the outset about who runs an LLC. This foresight is both for your business’s success and because the LLC operating agreement demands it.
LLC operating agreements are very flexible. You can tailor the management structure for your business. Given the flexibility and wide range of choices, it can be challenging to decide what type of management will work best for your LLC.
So Many Choices
If you are in the early stages of starting your LLC, you may wonder what kind of structures are possible. It is actually almost entirely up to you and your founding members. An LLC can be managed by its members or by one or more managers.
The management structure may be comprised of:
- designated members
- a combination of both members and non-members
The management structure need not be a group. The members can appoint a single individual to manage a manager-managed LLC. Let’s look more closely at the different ways you can decide who runs an LLC.
In a member-managed LLC, all members share the responsibility for the business’s day-to-day operations. Business decisions for the LLC are usually made through a voting process. This process is described in the operating agreement.
Unlike a corporation, there is no board of directors in a member-managed LLC. However, the members may appoint officers. Although most attorneys do not recommend a member-managed LLC, this type of management structure may work for:
- Smaller LLCs in which all members will work in the business
- LLCs with simple ownership structures
- Members who work well together
It is important to note, if both the articles of organization and the operating agreement are silent on management structure, most state statutes default to a member-managed LLC. In North Carolina, if an LLC’s operating agreement fails to set forth the members’ management structure and voting rights, the default is that each member is a manager. Each member/manager gets one vote regardless of their capital contributions.
In a manager-managed LLC, a single manager or a team of managers oversee the business’s day-to-day operations. Although LLC members do not control the business’s day-to-day operations, they usually retain the right to replace a manager. The operating agreement must address the members’ rights to hire and fire managers.
The manager-managed LLC is more complex than a member-managed LLC and is usually a better fit for more complex LLCs. This type of management structure works well for:
- LLCs with members who are passive investors without involvement in operations
- Larger LLCs that require a team focused on management activities
- LLCs offering complex goods or services in which a manager’s expertise is required
In most states, including North Carolina, the articles of the organization must specify the manager-managed structure. If the articles do not specify, the LLC defaults to a member-managed LLC structure.
Single Member Manager Management
You can choose to start an LLC as a single person and name yourself as a member and manager. An LLC can have a structure as complicated or as simple as you need to accomplish your day-to-day business goals.
Typically a manager works with employees, choosing workers, signing service contracts, and generally handling the day-to-day business operations. A member is usually responsible for business outside of the usual day-to-day operations. If the members must rewrite the operating agreement or the LLC must be dissolved or sold, these would be member actions.
As both manager and member, you would handle your business’s everyday operations and make the overall decisions for the entire business structure and future.
Changing LLC Management
The operating agreement should specify the process for changing the LLC’s management structure. The LLC members typically must vote to approve the change, usually requiring a supermajority vote. Once approved, the members must file an amendment to the articles of organization with the secretary of state’s office.
Making the Choice
Choosing the LLC’s management structure is an important part of the business planning process. Well-drafted formation documents—the articles of organization and operating agreement—are central to ensuring your LLC is structured the way you want at the outset. These articles must also be flexible enough to accommodate changing business needs.
Find Legal Help
We’re happy to work with you to understand your business needs. We ensure your LLC’s articles of organization and operating agreement work together to cover your LLC’s management goals. Often, just meeting with an attorney can clarify the issues you need to see clearly to make the best decision for your business.
At Hopler, Wilms, and Hanna, we want to clarify legal business issues for you so that you can focus on building your business. Contact our experienced and knowledgeable business attorneys online or by phone for a consultation.