Member-managed LLC (Full Guide) – Explained, Pros & Cons
Form a Member-managed LLC With Professional Help Today
If you’re considering forming a limited liability company (LLC), you have probably heard about member management. This method of running your business places the responsibility of managing your business on its members and is the most common form of management chosen when filing for LLC status.
However, this method of management can take more work from its members than the alternative and may not be right for everyone. So, before you decide if this method of management is right for you, let’s look at all that it entails and its advantages and disadvantages.
Managing Your LLC
LLC Management
An LLC is a limited liability company. It is a business that limits the liability of the owners for any of the business’s debts. It can have one or more members and be member-managed or manager-managed. We will discuss member-managed LLCs in this article and list a few of the alternatives.
Management Responsibilities
LLC managers have a lot of responsibilities whether your LLC is member-managed or manager-managed. Managers need to buy assets, arrange rentals, hire employees, and much more. These are all essential activities, so it’s important to make sure they all get done.
This may seem easy, but with a multi-member LLC with several members, it can be a little more complicated. That’s why it’s a good idea to specify what each member’s responsibilities are in your LLC’s operating agreement.
A manager-managed LLC may be less complicated if the members are content to let the manager make all the decisions. However, if the members want to make some of the decisions for the LLC, it’s more complicated. To reserve certain decisions for themselves, the members should specify what decisions they want to make and the vote required to make the decision in the LLC’s operating agreement.
All About Member-managed LLC
A member-managed LLC is managed by all of its members. Every member gets a say in the decisions for the LLC. Typically, each member’s say is based on their percentage of ownership in the business. Although, other arrangements are possible. It’s best to specify this in your operating agreement.
Each member has the authority to take out loans for the business, sign contracts, and make many other decisions. However, the LLC’s members need to vote on the final decision.
A member-managed LLC is the default LLC management structure in most states. This means that in most states, your LLC will be assumed to have a member-managed management structure unless you specify otherwise in your LLC’s operating agreement.
When Is a member-managed LLC a good choice?
A member-managed LLC is a good choice for single-member LLCs or LLCs with few members. Also, this type of management requires the members to be actively involved in the day-to-day management of the business. So, it works best if the members have the time and the desire to actively run the LLC.
Advantages of a Member-managed LLC
There are many benefits to choosing a member-managed LLC, especially if the LLC has few members.
Disadvantages of a Member-managed LLC
A member-managed LLC works well for many small LLCs, but it does have some disadvantages.
Alternatives to a Member-managed LLC
1. Manager-Managed LLC
A manager-managed LLC is run by a manager hired by the members of an LLC. The members need to agree on the person being hired to manage the LLC. Once the manager is hired, the manager makes all of the decisions for the LLC.
These decisions range from day-to-day decisions to more serious decisions, such as bankruptcy. The members can advise the manager; however, the manager is not required to take the advice. If the members want to reserve some of the decisions for themselves, they can do this by including the types of decisions they will make in the LLC’s operating agreement.
2. Management Company
An LLC has the option of hiring a professional management company to manage the LLC. You would have a contract with this company similar to the type you would have with an independent contractor.
3. Board of Directors
An LLC can designate a board of directors to supervise the LLC and assign offers to take charge of the business’s daily operations.
Member-managed vs. Manager-managed LLC
Neither member-managed nor manager-managed is actually a better choice overall. It really depends on your circumstances. You need to consider the number of members you have in your business, their level of expertise, the time they have available, and even how well the members get along with each other. You’ll also need to consider if the LLC makes enough money to hire a manager. The best management system is ultimately the one that works best for your LLC.
Get Help Forming Your Member-managed LLC Today
Forming a member-managed LLC may be less complicated than forming a manager-managed LLC, but it’s still a lot of work. So, if you’d like some help forming your member-managed LLC, these two LLC formation services can help.
#1 – ZenBusiness
ZenBusiness hasn’t been in business as long as some of its competitors, but it’s developed an excellent reputation. ZenBusiness gets primarily positive reviews from its customers, and for a good reason. It offers service at a very reasonable price, provides a year of free registered agent service, and helps you stay in compliance after you form your LLC. If you purchase one of ZenBusiness’s upper-tier packages, you get worry-free compliance. With this service, ZenBusiness will file your annual report and two yearly amendments. They will also alert you about any other filing you need to do to stay in compliance with the state.
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#2 – Northwest Registered Agent
Northwest Registered Agent started their business in 1998. They have a lot of experience and are well respected. They also have knowledgeable customer service agents and include registered agent service for a year for free in their packages. But, their best feature is the privacy they offer. Northwest Registered Agent does not sell their customers’ data. They also run their own servers and even write their own code.
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Final Thoughts
Member management has many advantages for LLCs with only a single or a few members. This method of management gives every member of the LLC the right to participate in decisions and daily running of the business.
This method of management is the default in most states and is easy to choose and set up. It also ensures that every member is involved in the business and generally results in considerable savings and simplicity overpaying for a professional manager.
There are many excellent services out there to help you form your member-managed LLC, and we addressed the best of them here. So, for many LLCs, this method of management is a good choice, and there is no reason not to get started forming your member-managed LLC today.