A managing member is essential in any company, responsible for the day-to-day operations and ensuring the company runs smoothly. This individual is an owner but also represents the company in legal and contractual matters. Let’s take a closer look at what managing members do, what types of companies you might find them in, and business structure considerations for start-up LLCs.
What is a Managing Member?
According to AZ Central, “The managing member can sign agreements and run the business’ daily operations. The managing member of an LLC is equivalent to a president or CEO of a corporation.”
Some businesses will have more than one owner working as a managing member. For example, in an LLC, owners may “have as many managing members as they choose.” However, it’s a “good idea to lay out exactly who the company managers are and what they are responsible for in the LLC’s operating agreement.” (1)
Without contracts and agreements laying out the terms for multiple member managers, these managing members may have disagreements over who is responsible for what.
With more than one person in charge, your organizational management structure could create business strife within your company. So to prevent difficulties, LLCs with many members may have groups of members with a managing representative who acts on behalf of their group when discussing business with the managing member. (1)
Your LLC operating agreement lays out responsibilities for LLC managers and member management, so there is less disagreement.
What are the Responsibilities of a Managing Member?
The managing member of any company is responsible for what happens in the company each day, running daily operations and settling problems that crop up. They are also representatives of the company in legal matters.
Managing members sign contracts and choose vendors to work with. Their signature carries the weight of the company in all contractual matters. And if the company finds legal trouble, the managing member is the voice of the business in court.
Managing members also have the authority to hire and fire employees. And they may also be responsible for managing the company budget and ensuring the business meets all financial obligations. In short, managing members carry the weight of company responsibilities and play a vital role in any company.
Where Can You Find Managing Members?
Managing members work in all sorts of companies. They are most commonly found in a limited liability company (LLC) but can also be managing members of partnerships and corporations.
As a single-member LLC, you can call yourself the LLC managing member, but it doesn’t have the same authority as a managing member in a corporation.
Corporations are more complicated structures with multiple shareholders. In this case, the managing member is typically the CEO or president of the company. Generally, the managing partner is much like the CEO in a law firm structure also.
Managing members are vital to any company’s success. They are responsible for daily operations, legal matters, and ensuring the company meets its financial obligations. If you’re looking to start a business, ensure you know who will handle the weight of responsibility and make the tough decisions.
Member Managed LLC vs. Manager Managed LLC
As a member-managed LLC, you involve yourself in the daily activities of the business, whether or not you run all of it. You understand the daily happenings of your business, even if you have a partner.
For example, your partner may handle all of the customer-facing business of your clothing retail store while you handle the business phone calls, accounting, and marketing. Your responsibilities may also include contracting with other vendors while your partner member hires and fires employees, manages the day-to-day operation of your store, and orders more inventory.
But if you bring in managers to perform your duties, you are no longer member-managed. Instead, you become a manager-managed LLC.
Simple Management and Operating Agreements
Member Managed
Using the example above, you and your partner each handle a large portion of the day-to-day business, so your management structure is simple. Your business operations remain clear-cut compared to an LLC with professional managers running operations instead.
Suppose you are a multi-member LLC with a member management structure. In that case, the NC Secretary of State recommends you hold an operating meeting to review your Articles of Organization before starting your LLC in North Carolina.
Your Operating Agreement will need to include the following:
- Designate Your Members (unless already listed in the Articles of Organization)
- Note the beginning and end of your fiscal year
- Write out who has the authority to handle the LLC’s banking
- Consider who has the power to make contracts
- Consider who handles which types of business decisions
- Set up checks and balances to protect you both
- Decide how you will be taxed (1)
Your operating agreement is relatively standard with a member-managed LLC, and your management duties are clear. However, you can also create a management structure that includes LLC officer titles, multiple LLC members, silent partners, and classes of members.
Manager Managed
Sometimes a manager-managed structure works well. Perhaps you have family friends you’d like to bring on as member investors. They implicitly trust you and your partner to handle the business’s day-to-day operations.
In this case, it might make sense to give these friends member status in your LLC while you and your partner handle the daily management.
Contacting an experienced business attorney is always helpful when writing an Operating Agreement. An experienced attorney can help you create a system of checks and balances to keep your LLC running smoothly and hold everyone accountable for their role in the business.
Efficient Operation of Your Business
Member Managed
With multiple members and managers, your organizational structure becomes much more complicated.
As a member-managed organization, you and your partner make all the decisions. You both clearly understand your responsibilities and how to handle your respective roles. You trust each other to make sound business decisions in your distinct areas of expertise. You may often talk and ensure you’re on the same page. With only one other person involved, your meetings are generally not long or overly complicated.
Manager Managed
What if you and your partner in the above example replace your positions with two managers who will handle your previous roles? You now have two managers and two members.
New questions crop up now that you’ve changed to manager management:
- Who has the authority to make daily business decisions?
- How much authority does a manager have to sign contracts or enter into agreements with vendors?
- Do managers handle the business savings or just work with your checking account funds?
- Which decisions fall under manager authority without the need to discuss them with members?
- What kinds of meetings will you schedule to discuss your business and go over the daily business operations?
- How will you make time to oversee the business and ensure your managers’ practices bring in business?
You can see how your Operating Agreement could change quite a bit with a manager-managed LLC. Your day-to-day involvement would also drastically change.
As members, you no longer make the managing decisions for your business.
And with a manager-managed LLC, you’ll also need to reassess how you file your taxes. And how will you file taxes documents and establish payroll for your new professional managers?
Whether LLC members decide to manage or not, seeking professional advice is wise. If you need legal or tax advice about your member-managed or manager-managed LLC, PLLC, corporation, or partnership, an experienced business attorney can help you structure your organization for the best outcome.
Making Choices About Member Managed vs Manager Managed LLCs
When deciding whether member-managed LLCs or manager-managed LLCs are better for you, there are a few key things to keep in mind. First, consider your role in the business and how much time you’re willing to commit to managing it. LLC management is a daily effort and usually a full-time gig.
A manager-managed LLC may make more sense if you’re not looking to be as hands-on. You’ll also want to consider the tax implications and whether or not you wish to bring on passive investors. Your success depends on your management structures that determine how your business runs daily.
A member-managed LLC may be right for you if:
- You want to avoid having to file taxes as a corporation
- You want the ability to bring on passive investors more easily
- You don’t mind active involvement in the management of your business
A manager-managed LLC may be right for you if:
- You want a clear line between managers and members
- You’re looking for some tax advantages as a non-managing member
Ultimately, it’s essential to choose the business structure that makes the most sense for all the members of your LLC. Consult an experienced business lawyer for professional legal advice before making any LLC structure decisions.
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