When a limited liability company is formed, one of the first decisions to be made is how the company will be managed. Also known as LLCs, these companies can be managed primarily in two different possible management structures. The first of these is a member-managed LLC, which entails members participating in the running of the business.
The second of these is a manager-managed LLC where only designated individuals are given the responsibility of running the business, such as certain members, non-members.outsiders or a combination of the two. Any other members in a manager-managed LLC are considered to be passive investors, and are therefore not involved in business operations.
The majority of the time when an LLC is setup, member management is the chosen structure. This means that all members share the responsibility for day-to-day operations and running of the business. This is more common due to the fact that the majority of LLCs are small businesses and startups who have limited resources, as well as being small enough to not require an entirely separate management team to operate.
One of the reasons why this structure is chosen for LLCs is because it is formed by individuals who want to be directly involved in managing the business, with a streamlined organizational structure without any officers or boards of directors. As an example, if an LLC is a retail store with LLC members who want to play an active role in the business such as the selection of products, hiring of employees, opening and closing hours and other critical decisions, then they will want to operate the company as member-managers. It should be noted that in most states LLCs are member-managed by default, which means that if a management structure isn’t designated in the formation documents then it will be considered a member-managed organization.
In certain circumstances it may be preferable to utilize a manager-management structure. Most frequently, this structure is chosen when some members want to be passive investors instead of being actively involved in the management of the company. Typically, these members feel more comfortable delegating management responsibilities for the LLC to other members or non-members instead of participating themselves.
There are other situations in which a manager-management structure is usually preferred. This structure is especially preferred when a business is very large, or when there are a large number of owners. It is also preferred when members are not particularly skilled at management. When management is delegated to a smaller group of people or even just one person it can be a more effective way of balancing the different skills and interests of members. It also can ensure that the business is competently managed which is especially important with larger-scale operations.
Business Attorney For LLC Structure
Choosing the right structure when founding a business is critical for its long-term success. This can often be a confusing choice for entrepreneurs and even some experienced business professionals. In many cases companies find it best to consult with an experienced business formation attorney in order to ensure the best possible structure is chosen whether that be member-managed or manager-managed.
The expert business attorneys at Hoeg Law have years of experience successfully helping companies with their organizational structure as well as formation documentation. If your business or startup is in need of assistance with management structuring or any other business formation matter, please contact our office today to get your company on the right track.