Starting a business with partners comes with a few questions. One of the main questions being, “what is the difference between a member or manager-managed LLC?” Well before we get to that, let’s start with the benefit of having an LLC entity.
One of the benefits of having an LLC versus another entity, like a corporation, is flexibility and customization. While the general principles addressed do apply to all LLCs, the exact laws and statutes vary from state to state. Back to the initial question of what is the difference between a member or manager-managed LLC. The primary difference is who can act as an agent for the company and who has the authority to legally bind the LLC.
More on the LLC
It all boils down to the LLC is a complete legally recognized being. Meaning that it can sign contracts and make transactions with other parties. But the catch is since the LLC isn’t an actual person to do these things, the LLC needs some humans to manage it. That’s where the members or managers come in!
In a nutshell, in a member-managed LLC, members will be actively involved in the day to day operations, decision-making, and running the business. While in a manager-managed LLC, members will elect one or more managers to be responsible for those tasks. Basically, the members are more like “silent partners” when it’s manager-managed. The members typically weigh in on major decisions for the LLC.
Remember when I mentioned the exact laws and statutes of an LLC vary from state to state? In Colorado, our statutes say:
If the articles of organization provide that management of the [LLC] is vested in on or more managers:
(a) A member is not an agent of the [LLC] and has no authority to bind the [LLC] solely by virtue of being a member; and
(b) Each manager is an agent of the [LLC] for purposes of its business and an act of a manager…binds the [LLC]…
If the articles of organization provide that management of the [LLC] is vested in this members, each member is an agent of the [LLC] for purposes of its business and an act of a member…binds the [LLC]…
Tune in to this week’s episode of All Up In Yo’ Business to hear more about how to structure your LLC. And be sure to subscribe to our YouTube channel for more All Up In Yo’ Business!
Want more information on LLCs? Check out: What to do After You Form Your LLC.