Difference between Member-Managed and Manager-Managed LLC

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Member-managed vs Manager-managed LLC

When forming an LLC, you must decide whether it will be Member-managed or Manager-managed. Another way to describe this is that you need to decide how your LLC will be managed.

An LLC can either be managed by its Members (a Member-managed LLC) or by its Managers (a Manager-managed LLC).

What is a Member-managed LLC?

A Member-managed LLC is when all of the LLC Members (owners) have the ability to bind the LLC in contracts and agreements, as well as take part in the day-to-day business and operations.

Most small businesses choose for their LLC to be Member-managed.

What is a Manager-managed LLC?

A Manager-managed LLC is when one, or a few designated people (called Managers), have the ability to bind the LLC in contracts and agreements, as well as run the business and day-to-day operations.

Typically, the owners (Members) cannot bind the LLC in contracts and agreements, and they can’t take part in running the business and day-to-day operations.

While the Members initially vote-in the Manager(s) (and can remove them), after that, the Members take a passive role and let the Manager(s) run the business.

However, in a Manager-Manager LLC, some of the LLC Members can also be Managers. We’ll discuss this in a few paragraphs.

Depending on the state where you form your LLC, your LLC’s management structure may be listed in your LLC formation documents (Articles of Organization, Certificate of Organization or Certificate of Formation). However, many states don’t ask and just let you decide “internally”, as spelled out in your LLC’s Operating Agreement.

We have Operating Agreement templates you can download below. We have a Member-managed Operating Agreement and a Manager-managed Operating Agreement.

Member-managed LLC by default

If an LLC is formed in a state where management isn’t listed on the LLC formation documents, and the Members haven’t signed an Operating Agreement, then state statute will apply. In this case, states default to an LLC being Member-managed.

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Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

What is an LLC Member?

Simply put, an LLC Member is an owner of the LLC.

An LLC Member can own 5%, 20% 100%, or any percentage, of the LLC.

All states allow for Single-Member LLCs (1 owner) and Multi-Member LLCs (2 or more owners). There is no limit* to the number of Members an LLC can have.

*If an LLC elects to be taxed as an S-Corp with the IRS, there is a limit to the number of shareholders (owners) the LLC can have. The limit is 100 shareholders (source).

What is an LLC Manager?

An LLC Manager is not the same thing as a “general manager” or “manager” (i.e. a store manager).

The term LLC Manager is something specific that is governed by a state’s LLC laws.

An LLC Manager is elected by the LLC Member(s) to bind the LLC in contracts and agreements and run the day-to-day operations.

LLC Management

When a person “manages” an LLC, it means the person has the legal authority to bind the LLC in contracts in agreements as well as run the operations.

Here are some examples of the type of authority someone who manages an LLC has:

  • make legal decisions
  • make financial decisions
  • open an LLC bank account
  • enter into contracts and agreements
  • buy/sell real estate, vehicles, investments, and other financial instruments
  • dispose/divest of the LLC’s assets
  • borrow money and obtain financing
  • hire employees, staff, and independent contractors
  • and more

Whoever is managing the LLC has a fiduciary duty (a legal obligation) to act in the best interest of the LLC.

Member-Managed LLC

A Member-managed LLC is when all of the LLC owners (Members) have a right to bind the LLC in agreements and they regularly make business decisions and run the “day to day” activities.

The key term in Member-managed LLCs is all, meaning that all of the LLC Members have the ability to bind the LLC.

If some of the Members don’t want to partake in the day-to-day activities or bind the LLC in agreements, they can appoint a Manager or Managers.

These Manager(s) can be existing LLC Members, or they can be non-Members, which we discuss below.

“Internal” Manager-managed LLC

Note: An Internal Manager-managed LLC is not an official term, however we use it to make LLC management easier to understand.

An Internal Manager-manager LLC is when some of the Members do not want to run the day-to-day business, but instead want the other Members to take care of this.

For example, let’s look at a four-Member LLC in the real estate business. Two Members, Steve and Susie are bringing the money, but they don’t want to run the day-to-day operations. Bob and Barbie, the other two Members, while bringing some money to the table, are responsible for finding properties and managing the renovations.

Steve, Susie, Bob, and Barbie are all Members, however Steve and Susie do not manage the LLC; Bob and Barbie do.

Therefore, this LLC is a Manager-managed LLC:

  • Steve and Susie are the Members
  • Bob and Barbie are the Managing Members (they are both Members and Managers)

“External” Manager-managed LLC

Note: An External Manager-managed LLC is not an official term, however we use it to make LLC management easier to understand.

An External Manager-managed LLC is very similar to an Internal Manager-managed LLC, except this time, none of the Members are the Managers. Instead, all of the Members take a “back seat” and they hire an outside person or persons (who is not an owner of the LLC) to run the LLC.

For example, Steve and Susie are both owners of an LLC, however, they live in Illinois and invest in real estate in California. They want to bring on an LLC Manager to run the operations in California. They hire Charlie, a real estate expert, as their LLC Manager. Charlie runs the day-to-day operations and binds the LLC in contracts and agreements.

Therefore, this LLC is a Manager-managed LLC:

  • Steve and Susie are the Members
  • Charlie is the Manager

“Hybrid” Manager-managed LLC

Note: A Hybrid Manager-managed LLC is not an official term, however we use it to make LLC management easier to understand.

A Hybrid Manager-managed LLC is an LLC that has both “internal” and “external” Managers.

For example, let’s look at our four-Member LLC again. We have Steve and Susie who are Members. And we have Bob and Barbie who are Managing Members (they are both Members and Managers). The four have decided to hire a real estate expert, Charlie, to help expand their business. Charlie, along with Bob and Barbie, will run the day-to-day operations and bind the LLC in contracts and agreements.

Therefore this LLC is a Manager-managed LLC:

  • Steve and Susie are the Members
  • Bod and Barbie are the Managing Members (they are both Members and Managers)
  • Charlie is just a Manager

How are Single-Member LLCs Managed?

Most Single-Member LLCs elect to be Member-managed, however a Single-Member LLC can also be Manager-managed.

Typically, it’s a little redundant, but if there is a choice on the state’s LLC formation documents, some people don’t want to reveal that they are the owner (Member), so they choose for their LLC to be Manager-managed and they list themselves as the Manager.

This way, it’s more ambiguous since an LLC Manager may or may not be a Member. In this case, they would still own and control the LLC, but that would be done privately through the LLC’s Operating Agreement (there are templates you can download below).

Most LLCs are Member-managed

Most people choose for their LLC to be Member-managed.

A Member-managed LLC is a simpler management structure and is usually easier for people to wrap their head around.

Binding Contracts in a Manager-managed LLC

It’s important to note that in a Manager-managed LLC, it’s only the Managers that can bind the LLC in contracts and agreements.

The Members (that are not Managers) cannot bind the LLC in contracts or agreements and they don’t take part in the day-to-day operations.

An LLC Member can advise an LLC Manager, but an LLC Manager does not have to follow or agree to this advice (depending on the language in the Operating Agreement).

Having said that, Members still have power, since if all Members agree, the Members can remove the existing Managers and appoint a new one. All Members must agree to such changes in writing. Again, the details depend on the language in the Operating Agreement.

What if I want to have someone else sign for the LLC, but I don’t want them to be an LLC Manager?

An LLC can still have someone sign on behalf of the LLC and enter into agreements, but this person doesn’t need to be an LLC Member or Manager. This person is usually called an Authorized Party or Authorized Individual.

This authority can be given to someone using a Resolution or an Authorization Agreement.

Typically, an arrangement like this is more limiting and restricting than having an LLC Manager.

We don’t have a Resolution or Authorization Agreement you can download at this time, but we do recommend working with an attorney if that’s something you’re interested in.

Operating Agreement Downloads for Member-managed and Manager-managed LLCs

Member-managed LLC Operating Agreement

Our Member-managed LLC Operating Agreement template is available in 3 formats:

Manager-managed LLC Operating Agreement

If your LLC will be Manager-managed, you can download the Operating Agreement template below, courtesy of Northwest Registered Agent.

Their Manager-managed LLC Operating Agreement template is available in 2 formats:

Operating Agreements don’t need to be notarized

Both Member-managed LLC Operating Agreements and Manager-managed Operating Agreements don’t need to be notarized.

Once the Members and/or Managers sign the Operating Agreement, it’s a legally binding document.

What’s up with all these “M” terms!

We hope this article has helped you learn more about Member-managed LLCs and Manager-managed LLCs.

But c’mon, who thought of those names! They are so confusing and sound so similar.

It reminds me of hip adduction and abduction. Sure, the names make sense, but anyone reading adduction and abduction or Member-managed and Manager-managed has to focus 3x time harder just so their brain doesn’t swap the terms!

Overall, there are way too many “M” terms going on. LLC Members, LLC Managers, LLC Management, Member-managed LLC, and Manager-managed LLC. Yea, way to make us rip our hair out lol. Okay, rant over. We hope we’ve been helpful!

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
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Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

30 Comments

  1. Hans January 27, 2019

    Several members [100+] of a golf course & club want to buy the land &club and set it up as a member-owned LLC. There would be a membership cost of around $5,000. [If a LLC member wants out, it could be transferred/sold to a new member!]
    The LLC would own the real estate, buildings & equipment. Donating LLC members would receive a 10% discount off any future annual dues/fees, dinners, etc. NON-LLC members/users/permittees of the golf course and facilities would not receive discounts. i imagine an external manager would be hired.
    Is this the best way to do a golf course member-owned company, that is LLC. Is there a way to avoid k-1 distributions of a multi-member LLC’s?

    reply
    • Matt Horwitz February 6, 2019

      Hi Hans, this is quite an advanced question, something we don’t address. Would be best practice to run this by a tax attorney. Thanks for your understanding. Hope that helps.

      reply
  2. William January 30, 2019

    Our manager would need to delegate authority, which is allowed under Washington state law. Is there a standard form that needs to be filled out, or can that be specified in the Operating Agreement?

    reply
    • Matt Horwitz February 8, 2019

      Hi William, that’s a good question. Not sure though. Best practice to reach out to an attorney. Hope that helps and thank you for your understanding.

      reply
  3. Meg February 7, 2019

    I’m helping my boyfriend start his carpentry/handyman LLC in Florida. I am in the process of filing for the the LLC online and am having difficulty in determining titles for the section ‘Authorized Person(s) to Manage LLC’. I have several questions that hopefully you are able to clarify.

    -As the owner of the LLC, I have him listed as AMBR (Authorized Member). Is this an appropriate title for him as the business owner?

    -I will be acting as his secretary/employee/etc., handling things such as invoicing, correspondence, and other office work. I am also to have access to bank accounts, insurance, etc. I’m a bit confused as whether I would be listed as an Authorized Representative (AR), Authorized Person (AP), or a Manager (MGR) on the LLC application- what would be the appropriate title?

    -In filing with the IRS, we expect to file as an S-Corp, as he will draw his income from the LLC. For now, he and I will be the only two employees of the LLC. Does this seem like an appropriate tax selection?

    Thanks for your help!

    reply
    • Matt Horwitz February 14, 2019

      Hi Meg, yes, AMBR (Authorized Member) is used for an LLC Member (owner). We can’t comment on your second question, since there’s some ambiguity around how the LLC will be managed. I’m not sure if your boyfriend wants the LLC to be Member-managed by him and then you, as the secretary, just have certain powers. Or maybe he wants nothing to do with management, wants to take a back seat, have the LLC be Manager-managed, and you be the LLC Manager. Keep in mind, the term “LLC Manager” has specific ramifications. It’s not the same thing as a “general manager”. It might be a good idea to dive into the details with an attorney, or have a conversation with one.

      Having said that, regarding the opening of an LLC bank account, you may want to list yourself in the “Name And Address of Person(s) Authorized to Manage LLC” section so you can open the bank account and be listed as a signer. Take a look at Florida Division of Corporations: Title Abbreviations. You could also use S (Secretary) instead of AP (Authorized Person). In addition to this, it’s a great idea to call the bank ahead of time, speak with the branch manager, and ask specifically what documentation is needed in order for you to be on the bank account. The bank may not even require that your name be on the LLC’s Articles of Organization. Often, a simple Banking Resolution signed by the LLC Member may work.

      You can both still “get paid” from the LLC without the need for the LLC to elect S-Corp taxation. Meaning, your boyfriend can take a draw from the LLC at any time. This can be done in an LLC with default tax status (LLC taxed as a Sole Proprietorship). If the LLC is taxed as an S-Corp, he actually wouldn’t take a draw. Instead, he’d take a distributive share (which is similar to a draw). Additionally, in an LLC/S-Corp, he’d need to take a reasonable salary. We have more info on LLC/S-Corp here: LLC taxed as S-Corporation. If your boyfriend’s aim is to save money on self-employment taxes, then you’ll want to consider what the net income of the LLC will be. This will help determine when those savings will “kick in”.

      Also, some clarifications. If the LLC remains in its default tax status (LLC taxed as Sole Proprietorship), your boyfriend cannot be an employee and cannot take a salary. Again, he’d only take draws. If you want to receive W-2 wages, then payroll would need to be setup and you can be paid in that manner as an employee. As an alternative, you could also be paid as a 1099 independent contractor. This would avoid the need for payroll. However, instead of your taxes being withheld, you’d be responsible for paying your own taxes. If you ended up taking the LLC/S-Corp route, then you’d both be W-2 employees of the LLC. In summary, you can be a W-2 employee in either LLC/Sole Prop. or LLC/S-Corp, however, your boyfriend can only be a W-2 employee in an LLC/S-Corp setup. Hope that helps!

      reply
  4. Mary February 12, 2019

    Hi Matt, my husband and I are member and managers of the LLC in Illinois We didn’t have an operating agreement but since formation we verbally agreed that I would handle the books and he manages the business. Can he just remove me as a manager without my consent? And does his ownership interest of 98% and I 2% make me have no right if again he wants to remove me as manager and from my role as accountant?

    reply
    • Matt Horwitz February 15, 2019

      Hi Mary, these are good questions. Without an Operating Agreement in place, things fall back on the state statute. Typically, in a Multi-member LLC, a Member just can’t kick out another Member unilaterally. Overall though, this would be a good thing to discuss with an attorney. And it would be a good idea to get a Manager-managed LLC Operating Agreement in place. Hope that helps.

      reply
  5. Melissa March 4, 2019

    Hi Matt,
    I must say I really appricate your website, it has been helpful in answering some questions. I do have one question, my son and I are considering starting an LLC, he is only 15 yrs old, can he be a member on the LLC and should I do a manager-managed or can I do a member-managed LLC since he is a minor.

    reply
    • Matt Horwitz March 5, 2019

      Hi Melissa, that is great to hear, thank you! In this case, it’ll be best practice to speak an attorney in the state where you’re going to form your LLC. States have different laws on whether minors can be LLC Members. Additionally, even if a state allows for a minor to be an LLC Member, you’ll also want to look into the ability for that minor to enforce a contract. Hope that helps.

      reply
  6. Ami July 1, 2019

    Hi Matt – Thank you for providing such a great site with valuable information. I am looking at starting an Investment Vehicle LLC with my husband. I understand from previous comments an info you provided that Member Managed is easiest but if we plan on expanding and creating additional LLC that will be managed by the parent LLC should we run parent LLC as Manager Managed? Can you please send me Manager Managed Template. Thanks!

    reply
    • Matt Horwitz July 7, 2019

      Hi Ami, we just emailed you the Manager-managed Operating Agreement. Just because an LLC is owned by another LLC doesn’t mean the “child LLC” needs to be Manager-managed. However, it certainly can be if you’d like it to be. There isn’t really a black and white rule about how an LLC should be managed, so it really comes down to the details of your situation and what you’re looking to accomplish. Hope that helps.

      reply
  7. Nao January 7, 2020

    Hi Matt, We were glad to find your website. Actually, we should have found it a week earlier.. The thing is we selected manager-managed instead of member-managed when we filed a week ago. We simply didn’t understand the difference and selected the wrong one. We are in NY and about to publish the legal notice in 2 newspapers now and are wondering if we should amend it before publishing or just do all the process first and amend it later. This may not be a question for you or for this topic, but if you can give us any thoughts or information you can think of, we truly appreciate it. Thank you so much!

    reply
    • Matt Horwitz January 7, 2020

      Hi Nao, in the New York LLC Articles of Organization, did you make the optional statement describing the management? If yes, no, you don’t need to amend that in order to fulfill the LLC newspaper requirements as that information is not required to be in your ad. Hope that helps.

      reply
      • Nao January 7, 2020

        Hello Matt, thanks so much for your prompt reply! We filed with a registered agent. In the Articles of Organization, it says the company is to be managed by: ONE OR MORE MANAGERS. I think this is what you mentioned. Me and my friend have started this and we will own, manage the LLC by ourselves. If we do not amend, will it be a problem? If so, when do you think is a good time to amend it? Thanks again!

        reply
        • Matt Horwitz January 9, 2020

          You’re welcome Nao. No one checks on your LLC to see if it is or isn’t managed by Managers. So it’s not going to affect the publication requirement or how you run your LLC. Your LLC Operating Agreement is where the management is really governed. However, to make everything aligned, you can file an amendment at any time to either remove that statement or change it to “one or more members”. The form to file with New York is called Certificate of Amendment of Articles of Organization. Hope that helps.

          reply
  8. Nao January 9, 2020

    Thanks so much, Matt! Everything is clear now.

    reply
    • Matt Horwitz January 9, 2020

      You’re welcome Nao :)

      reply
  9. Allison January 30, 2020

    Hello,
    My partner has a single member LLC in California. While he takes care of the physical work (contractor) I do all the ofice work (invoicing, payroll, bids). Because his job requires him to be out of town often, it would make sense if I was able to sign contracts, checks and other documents (without being a partner/member). What form needs to be submitted? What title should I have?
    Thank you!
    Allison

    reply
    • Matt Horwitz January 31, 2020

      Hi Allison, this can be accomplished via a Resolution or Authorization Agreement. This will give you certain powers (or all powers) to bind the LLC in agreements as well as sign checks. However, you’ll then need to take that document to the bank to become an authorized signer. We recommend calling the bank ahead of time, speaking to the branch manager, and asking if they request a specific document or have a different protocol. Feel free to share your experience with the bank. I’m sure it’ll be helpful for other readers. Hope that helps.

      reply
  10. Michael January 31, 2020

    Hi, Matt,
    My sister and I inherited, equally, several rental properties in California. We are setting up an LLC. Neither of us live near the rental properties and so won’t be doing day-to-day operations. We have someone acting as manager, presently. My sister and I will be the only members of the LLC and would both like to be able to act as Member-managers when necessary – especially with large financial matters – but we also need a local manager who can sign contracts, work with banks, buy/sell (as directed) and in general act as in a Manager-managed situation. Is this doable? Or is this just a Member-managed situation that hires a manager and gives the manager authority to enter contracts, etc..? Is there some legal difference?

    reply
    • Matt Horwitz February 3, 2020

      Hi Michael, great question. The general term “manager” and an LLC Manager are very different. The first is a general term that holds no inherent meaning, besides that which exists in the agreement between the manager and the company that hired the manager. The second term is specific to language within an LLC’s Operating Agreement as well as state statute. If you just want to hire someone as a “regular manager” and give them certain authority, that can typically be done with a Resolution or Authorization Agreement. However, you could form a Manager-Managed LLC, where only you and your sister are Members (owners), but then you, your sister, and the person you hire can be the LLC Managers. You can draft the LLC’s Manager-Managed Operating Agreement to give you and your sister more power and control while still allowing the person you hire to (with authorization from you and/or your sister) to sign contracts, work with banks, buy, sell, etc. Either way, we do recommend working with an attorney to properly draft an Authorization Agreement or Operating Agreement to make sure you cover all scenarios. Hope that helps!

      reply
  11. Michael February 3, 2020

    Thanks, Matt, you answered my question. Great site with good info.

    reply
    • Matt Horwitz February 5, 2020

      Thanks Michael! You’re very welcome. Actually, your question sparked some revisions to the article. We made it more clear on the differences between an LLC Manager and a “regular” manager that people typically think of. So thank you for helping us improve!

      reply
  12. Claire February 6, 2020

    Thanks for your helpful site. Can a professional Manager of a Delaware LLC be compensated as independent contractor? This is an investment LLC without employees, which won’t require full-time management.

    reply
    • Matt Horwitz February 6, 2020

      Hi Claire, you’re very welcome! A non-Member Manager (“External Manager”) can be paid as an employee (W-2) or an independent contractor (1099). Hope that helps.

      reply
  13. Ricardo Novales Vargas February 7, 2020

    Hello:

    In my Delaware – LLC there are 2 owners (each with different percentages). At the end of the document it has a line to be filled with the title “Duties” for each member.
    Is it enough just to write for each member “Executive Member” to give them full power over every aspect of the company?
    Thank you

    reply
    • Matt Horwitz February 8, 2020

      Hi Ricardo, Executive Member isn’t a term that stands on it its own. It’s not an official word with inherent meaning. We’re also not sure about the document you’re referring to and can’t comment on how to fill it out. Having said that, it sounds like it’s asking for specifics. I guess if you don’t want specifics, you could say something along the lines of “any and all legal activities that are in the best interest of the LLC”. Hope that helps.

      reply
  14. JOY February 13, 2020

    We are forming an LLC. My husband and I plan to include our children (ages 26, 24 and 17) as owners/members PLUS we are moving soon to north texas and oldest leaves in OK. Can we use our business address as the individual address for everyone including the one who lives in OK?

    reply
    • Matt Horwitz February 23, 2020

      Hi Joy, if you are referring to the Texas LLC Certificate of Formation (Governing Authority section), then yes, those addresses can be located in any state. If you are moving to and doing business in Texas, you’ll need to either form an LLC in Texas or form an LLC in Oklahoma and register it as a foreign LLC in Texas. Having said that, it’s important to note that a foreign LLC filing in Texas is more expensive that a “regular” (domestic) LLC filing in Texas. Hope that helps.

      reply

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