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.

Need to save time? Hire a company to form your LLC:
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.
Leave a Comment (128) ↓
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.

95 Comments

  1. john newell October 11, 2017

    In our Tour by vehicle LLC, two owners and founders are managers. The LLC wants to have additional tour drivers who are members compensated on a per tour basis.

    How do we designate the drivers as members / owners?

    reply
    • Matt Horwitz October 18, 2017

      Hi John, are you sure you want the drivers as members (owners) of the LLC? You can pay people on a per tour basis without adding them as owners in your LLC.

      reply
    • SLC February 9, 2019

      Didn’t you read this part above? Do you want your members able to remove your managing owners if there were ever a disagreement?

      “An LLC Member can advise an LLC Manager, but an LLC Manager does not have to follow or agree to this advice.”

      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.”

      PS. Thank you for the excellent explanation.

      reply
      • Matt Horwitz February 18, 2019

        Thanks SLC! Appreciate the kind words :)

        reply
  2. Pam Lefferts December 21, 2017

    I have submitted an application for LLC. I am operating a wildlife rescue and want to become non-profit. Is this the first step in that process? Do I ave to pay an annual fee to keep the LLC for our name?

    reply
    • Matt Horwitz December 22, 2017

      Hi Pam, LLCs are not non-profit vehicles. A non-profit is actually a non-profit Corporation. Said another way, you’d first form a Corporation with the state and then file an application with the IRS to get an exempt/non-profit status. Whether or not your LLC has an Annual Report depends on the state. Where did you form the LLC?

      reply
  3. Nadiya January 2, 2018

    Hi Matt,

    My business partner and I will be establishing a Multi member LLC in PA. Currently we are still searching for a suitable Tax Professional here in Phila-Pa. We each operate the business from home (two separate addresses). Are we able to list two different addresses when establishing an LLC for tax purposes???

    reply
    • Matt Horwitz January 2, 2018

      Hey Nadiya, on the Pennsylvania Certificate of Organization, there are two address fields. The first is the Registered Office address. The second is the LLC Organizer address. There isn’t a way to use two addresses for the Registered Office, so you’ll need to choose one address to put there. If you’d like to list both you and your partner (and both of your addresses) in the Organizers section, you can do that. Hopefully that helps. Let me know if you have any followup questions.

      reply
  4. Barbara January 2, 2018

    Hello,
    I want to open a personal care agency by myself in the State of Indiana. I am still confused on if I should select a manager- managed or member- managed. Since I will be the only one making decisions. Is it very difficult to do manager- managed articles?

    reply
    • Matt Horwitz January 2, 2018

      Hi Barbara, you can really pick either one. There are not really pros and cons in the single-member Indiana LLC to going one way over the other. I’d say if you’re looking for something simple, go with Member-managed. On the other hand, if you decide to go with Manager-managed, let me know and I’ll email you our Manager-managed Operating Agreement (we don’t have it on the website yet). Hope that helps!

      reply
  5. Aleks Holiday January 10, 2018

    Our Grown college age children will be members on our LLC, however at this time we want a manager-managed LLC, can you email the template to me. I read in one of your other comments that it was different

    reply
    • Matt Horwitz January 15, 2018

      Hi Aleks, sure thing! I just emailed it to you.

      reply
      • James January 16, 2018

        I’m in the process of forming my LLC. I plan to add myself and my three kids as members. Kids are 18, 16 and 14. Because of my kids, I plan to make my LLC a Manager Managed structure in which I intend to be the manager and make my kids passive members. My LLC is being formed for my Real Estate Business, as I’m a Real Estate Broker in the state of WA. I also intend to elect to be taxed as an S-Corp due to the amount of money I predict to make. Is there any pointers you can give me or do you think my plan is ok?

        reply
        • Matt Horwitz January 17, 2018

          Hi James, Manager-managed (with you as Manager) sounds like an excellent setup. We have a guide on LLCs being taxed as S-Corps here: LLC Taxed as an S-Corp (Form 2553). I recommend speaking with an accountant (or a few) to make sure it’s the best tax setup for you. Hope that helps!

          reply
  6. Julio Cintron January 11, 2018

    Hi ,
    My wife & setting up a cleaning business. My wife & I will manage all business operations & will hire employees to handle the labor (cleaning) part. If I’m right, is “members managed” the best way to go in my case? With the members being just me & my wife?

    reply
    • Matt Horwitz January 15, 2018

      Hi Julio, yes, correct. A Member-managed LLC with you and your wife is the way to go. Hope that helps!

      reply
  7. Patricia Meeks January 13, 2018

    My deceased mother & her disabled sister have an llc. I am the executor of my mothers will & my aunt also signed over 50 to me. Can I form an llc for just my mother & let my aunt’s kids have hers seperately

    reply
    • Matt Horwitz January 15, 2018

      Hi Patricia, I’m not sure in this case. Apologies I couldn’t be more helpful. I recommend calling a few lawyers and seeing what they think.

      reply
  8. James January 16, 2018

    Could you also forward me a copy of your Manager Managed Operating Agreement Template?

    reply
    • Matt Horwitz January 16, 2018

      Sure thing. Just emailed it to you√

      reply
      • Gary January 30, 2018

        Hello Matt,
        First of all, thank you for your Q&A, pretty helpful.

        My wife and I are starting a Arkansas LLC for a couple of rental properties, very simple. It’s just her and I and no one else will be “members.”
        1)Will this be a member managed or manager managed setup?
        2)I have no clue as to what to say on the operating statement. Any ideas will be a huge help!!

        Thank you!!!

        reply
        • Matt Horwitz January 31, 2018

          Hey Gary, you’re very welcome :) 1. Easiest to do Member-managed. 2. You can download a “fill in the blank” Operating Agreement here: Arkansas Operating Agreement. There are instructions on that page which should help.

          reply
      • Kris June 27, 2018

        Matt,

        Would you forward me your manager managed template as well? (Operating agreement) I love what you do for the community.

        reply
        • Matt Horwitz July 31, 2018

          Thanks Kris! I just emailed it over.

          reply
  9. Del January 17, 2018

    I enjoy your wisdom Matt. I’m a General Contractor in Michigan who is looking into creating multiple LLC’s to eliminate or reduce certain taxes and insurance obligations by way of “spreading the wealth” with each individual member of our various crews. For instance, a manager managed, five man drywall crew, all members, are compensated on a percentage basis determined by the role they play. If the facts were laid out in writing beforehand, would this be legit? Could I look at your member managed operating template?

    reply
    • Del January 17, 2018

      Whoops, I meant manager managed operating agreement template, sorry.

      reply
      • Matt Horwitz January 19, 2018

        Hi Del, thanks for the kind words. Honestly, in this situation, I’m really not sure. First time hearing of something like this. I recommend giving our “knights of the roundtable” strategy a go and phoning a few attorneys and/or accountants. I just emailed you the Manager-managed Operating Agreement.

        reply
        • Del February 1, 2018

          Hey Matt, I want to say thank you for the response and I appreciate you offering your expertise to those of us who are always seeking ways to better ourselves. Much gratitude.

          Upon further analysis it looks as tho a Member Managed llc could be the wiser choice for my endeavor due to certain limitations within this myriad of potential mayhem. Do you think I could bother you for an member managed operating agreement template to look over?

          reply
          • Matt Horwitz February 3, 2018

            Hi Del, thank you for the nice comment. You are very welcome :) Sure thing. You can find that here.

            reply
  10. Jay February 6, 2018

    I am forming an LLC for a rental business and am not sure about member managed vs manager managed for tax reasons. Are they both treated as pass through taxation?

    reply
    • Matt Horwitz February 9, 2018

      Yes, they are both treated the same for pass through taxation. This might be a helpful example… pretend you have a Manager-managed LLC with 3 people. You and a business partner are Members and you hire a 3rd person, pay them a salary, and they are your Manager (and not a Member). The Manager will just pay taxes as normal (whether an employee or independent contractor). You and your partner still have to file a 1065 Partnership Return, issue K-1s, and report the income on your personal 1040s. On the other hand, if you and your business partner (this time no 3rd person) formed a Member-managed LLC, you’d still file taxes the exact same way. Hope that helps Jay.

      reply
  11. Scott February 16, 2018

    Hello,

    I will probably be starting a manager managed LLC in Indiana with me as the manager. It will be just me. I am starting a few online e-commerce businesses. I am looking for the easiest option that provides the best liability protection as well as good tax benefits. Any suggestions?

    Thanks,

    Scott

    reply
    • Matt Horwitz February 21, 2018

      Hey Scott, Member-managed vs. Manager-managed shouldn’t affect liability or tax benefits (in simple terms). If you really wanted to dig into the details, you’d have to get on the phone with a few attorneys. There may not be much of a benefit of being a single-member LLC that is Manager-managed by you (being both the Manager and the sole Member). But on the other hand, many say it doesn’t matter much in a single-member LLC. Apologies for the vague answer, but hope it helps somewhat.

      reply
  12. William Kaelin February 17, 2018

    My friend and I are purchasing residential rentals in PA as investment for retirement. We have decided on forming an LLC. We live in different towns about an hour away. It will be a 50/50 partnership. He mentioned that it may be easier to have me as the Member Manager in our agreement so he doesn’t have to come out to sign forms, such as getting home insurance and whatever else comes up. Thoughts? Suggestions? And if I do become the Member Manager, will I incur any additional tax liability? No, I will not be taking any salary. Thank you in advance.

    reply
    • Matt Horwitz February 21, 2018

      Hi William, I believe you mean “Manager” or “Managing Member”. A “Member Manager” isn’t a term that is really used (as it’s ambiguous). For more details on titles, please see LLC Officer Titles. I think what your partner is suggesting though is for the LLC to be Manager-managed and you be the Manager. If that’s the case, no, this will not increase your tax liability. Hope that helps.

      reply
  13. Jordan March 15, 2018

    The only way to appoint a manager is to vote someone into that position, after the Operating Agreement is formed? Meaning that when the LLC is initially being formed, everyone is either a manager or a member.? (I’m from Texas)

    reply
    • Matt Horwitz March 22, 2018

      Hi Jordan, think of the vote (if Members are voting to elect a Manager or Managers) taking place by adopting and signing the Operating Agreement. But what’s entered in the Certificate of Formation should match what the vote becomes. I know that’s a bit confusing to read, but let me know if that helps.

      reply
  14. Kitty April 13, 2018

    Does the sole proprietor of a manager-managed LLC have to be the manager or can an outside person be chosen?
    Do you have a manager-managed operations agreement?

    reply
    • Matt Horwitz April 14, 2018

      Hey Kitty, a non-Member can be a Manager. I just emailed you a Manager-managed Operating Agreement. Hope that helps.

      reply
  15. Dave R. April 18, 2018

    Hi Matt! First, thank you for this website and the information that you provide. This has been my go-to source since I’ve discovered it in January 2018. It’s simple, straight-forward, and user-friendly. Second, I’d like to get a soft copy of the Manager-Managed Operating Agreement if you’re still sharing that. Thanks in advance.

    Best Regards,

    Dave R.

    reply
    • Matt Horwitz April 20, 2018

      Hey Dave, thanks for the awesome comment! So great to hear! Just sent you an email with the Manager-Managed Operating Agreement. Hope that helps and best wishes :)

      reply
  16. Julie May 3, 2018

    I have a current LLC but I want to open another LLC under it (basically the first one will be a holding company is my understanding) The originall LLC is a 2 member managing company. Will I continue a Member managed operating agreement for the company I am forming under it or does this now qualify as a Manager-Managed? I am assuming the former as the the orignial 2 members will still be managing both the holding company and this new company?

    reply
    • Julie May 3, 2018

      I think I may need a Manager-Managed Operating Agreement?

      reply
      • Matt Horwitz May 16, 2018

        Hi Julie, I just emailed it to you.

        reply
        • Matt Horwitz May 16, 2018

          Hi Julie, the email came back as “failed”. Please fill out the contact form on our website and I’ll send the Operating Agreement your way. Thanks.

          reply
    • Matt Horwitz May 16, 2018

      Hi Julie, you have the LLCs managed any way you want. There is no “forced option”. Hope that helps.

      reply
  17. Rob May 31, 2018

    Hello Matt,
    Can you please email me Operating agreement for Manager-Managed LLC?

    Thank you

    reply
    • Matt Horwitz June 17, 2018

      Hi Rob, I just emailed it over. Thanks.

      reply
  18. Lyn June 12, 2018

    I hope you can help me. My husband and I are planning to open a fastfood restaurant here in Arkansas. I will be working full time and will hire one full time employee and a part time employee. My husband has his own business but can help me in the restaurant about 40% of the time. The best business option for us is to have an LLC. I will be the manager but he can too (make decisions, sign contracts, etc). So ours woukd be Member managed.

    What do you think is the best option for us for tax purposes, as sole proprietor, S corp, or C Corp.?

    reply
    • Matt Horwitz June 18, 2018

      Hi Lyn, there are far more details to consider regarding how the LLC is taxed. If there is just one Member, by default, the IRS will tax the LLC like a Sole Proprietorship. If there are 2 or more Members, by default, the IRS will tax the LLC like a Partnership. We have info on LLC/S-Corp here: LLC S-Corp taxation. We don’t have info on LLC taxed as C-Corp yet – it’s not too common. However, you’ll want to speak with a few accountants regarding the best method of taxation for your LLC. Hope that helps.

      reply
  19. Demetrios Demetriades June 17, 2018

    My brother is a foreign citizen and wants to open an LLC in Delaware doing business in California.
    He wants to be 100% onwner
    Me ( American citizen) wants me to help him by managing certain aspects of behalf his LLC. ( open bank account -since he is not in USA- help him with transactions etc).
    Mainly in case he buys big real estate he wants to be the one who makes all decisions and signs documents when he is in USA , but when he is not I can sign for him.
    So, when we apply for LLC
    What it should say?
    Him ( 100% own) : member
    Me: Manager

    Right?
    Or it should say
    Him: owner , member & managing member
    Me: additional or 2nd Manager ?

    He just doesn’t want me to have the full responsibility for everything for his LLC ( company)

    Please clarify
    Thanks

    Demetrios.

    reply
  20. Jarvis Johnson June 23, 2018

    Thanks for the clarification. I decided to go with a manager-managed LLC. Can you resend the manager-managed LLC, I don’t believe I received the manager-managed LLC template from you unless I lost it some kinda way, which is very probable, lol. Thanks for the advice and help once again.

    reply
    • Matt Horwitz July 30, 2018

      You’re welcome Jarvis. I just emailed it over. Thanks.

      reply
  21. Elton July 8, 2018

    Hello Matt,
    Can you please email me Operating agreement for Manager-Managed LLC?

    Thank you

    reply
    • Matt Horwitz August 12, 2018

      Hi Elton, we just emailed it over to you.

      reply
  22. Elton July 8, 2018

    Hey Matt,

    can you please explain about holding companies ?
    Pretend I have a LLC, my business is to sell on marketplaces and ecommerce. If I’ll have another business what can I do to separate them, I really have to form another LLC under the first to hold assets, such as real estate, and vehicles or there’s another option. sorry about my english

    thank you.

    reply
    • Matt Horwitz August 12, 2018

      Hi Elton, you can either form multiple LLCs or you can form a Parent LLC (a holding company) and that LLC is the Member (owner) of the other LLCs (Child LLCs). Hope that helps.

      reply
  23. TH July 11, 2018

    Hi Matt
    A purchase agreement has been entered into with a Manager managed LLC (“A”) where the Manager is an LLC (“B”)
    The agreement provides for payment to the Seller LLC (“A”)
    The Managing LLC has requested that the check be made payable to the Managing LLC (“B”) rather than the Selling LLC (“A”)
    Is there any problem with complying with this request?
    Thank you

    reply
    • Matt Horwitz August 12, 2018

      Yea, that sounds pretty funny to me. If “A” is seller, payment should be made to “A”, not “B”.

      reply
  24. Bob August 8, 2018

    Hi Matt,

    I have a media project where three investors want to form an LLC and invest into an LLC and become a manager of which my company is also a manager. They have no experience in the media project, but as a manager they can take advantage of recent tax laws. How can I protect the media project from their interference as a manager?

    reply
    • Matt Horwitz August 15, 2018

      Hi Bob, allowing your investors to be LLC Managers will give them a lot of rights and control over the business operations, and by default, the ability to bind the LLC into contracts and agreements. And if all 4 of you are LLC Members, depending on how the LLC’s Operating Agreement is drafted, you could lose out on voting rights if things can be decided on by a majority vote. So in default scenario (meaning standardized/default/templated Operating Agreement language), you’re likely left with little to no control. There are a number of different ways to structure a capital investment (for example, you could consider a loan, collateralized or uncollateralized, as an option) as well as the numerous ways to structure an LLC’s Operating Agreement. All of these options should be discussed with an attorney (or a few) before making any decisions. Hope that’s helpful.

      reply
  25. Carl August 9, 2018

    If 3 S-Corps that are each owned by a unique single person partner to form a new LLC and the 3 owners of the S-Corps will all be participating in management of the new LLC, would that need to be member managed or manager managed where the S-Corps vote the 3 humans in as managers?

    reply
    • Matt Horwitz August 15, 2018

      Hey Carl, that sounds like a Manager-managed LLC since the owners are S-Corps (or rather, their underlying state entities; a Corporation or LLC since an S-Corp is not created at the state level, but rather it’s only a tax entity) and the Managers are individuals. Yes, the 3 owner entities would vote to elect the Managers. Hope that helps.

      reply
  26. John August 10, 2018

    I have just formed an LLC with my wife as managed by managers and will probably proceed as SMLLC, reflecting myself as manager. Can you please provide the appropriate operating agreement template?

    Thanks

    reply
    • Matt Horwitz August 15, 2018

      Hi John, I just emailed you a Manager-managed Operating Agreement template. If you formed an LLC with your wife, that sounds like 2 Members, therefore a Multi-Member LLC (not a Single-Member LLC). If your LLC was formed in a community property state, please see our article on the Qualified Joint Venture LLC. This is a tax election that can be made with the IRS that allows 2-Members LLCs owned by a husband and wife (formed in a community property state) to be taxed as a Sole Proprietorship instead of being taxed as a Partnership. Hope that helps.

      reply
  27. Gabbar Singh August 17, 2018

    Indeed nice article. Thanks! A quick question – in a two members existing LLC where “Articles of Organization” states the Management to be “Managed by All Members”, can a member still be a passive investor through stating that fact (i.e. being passive) in Operating Agreement? Or do you think it is best to update/amend the “Articles of Organization” to state the Management to be “Managed by one manager”?

    reply
    • Matt Horwitz August 18, 2018

      Hi Gabbar, I would look deeper and see if the LLC is truly shifting from a Member-managed LLC to a Manager-managed LLC, and if so, the Articles of Organization should be amended to reflect that change. Hope that helps.

      reply
  28. Rachel September 12, 2018

    Hi Matt,

    Thank you for all the information you provide here. Can I form a external Manager- managed 1 member LLC( member being myself) and appoint a non US resident as a Manager ? Can I be a passive investor in my own 1 member LLC? Also, since I’ll be the member of the LLC and not the manager, I can open the bank account?

    Can you please email me the manager managed operating agreement as well. Thank you!

    Please email me the

    reply
    • Matt Horwitz October 16, 2018

      Hey Rachel, yes, you can set up your LLC in the fashion you described. Please check out your state by clicking the link on the home page of our site. We’ve updated many Operating Agreement lessons and added the Manager-managed Operating Agreement template. Hope that helps!

      reply
  29. DAN SENECA November 3, 2018

    Hi Matt,
    Great site. I live in PA and created a LLC for my self-directed IRA to buy properties to rent. I submitted 15-8821 cert of org-dorm LLC and 15-134A docketing statement to the state. The paper work did not have a section to list members, which would be the IRA account. Where do i state that the IRA account is the sole member, but my wife and I will be managing member to buy and sign documents?

    reply
    • Matt Horwitz November 23, 2018

      Hi Dan, that’s correct. The Pennsylvania LLC paperwork doesn’t list Members. Since you likely signed as the LLC Organizer, we recommend signing a Statement of LLC Organizer, which will show you stepping down as the Organizer and appointing your IRA as the owner. In addition to that, prepare and sign a Manager-Managed Operating Agreement (I just emailed you a copy). The Manager-Managed Operating Agreement will show your IRA as the owner and you and your wife as the Managers (note: not “Managing Members” as you stated). Hope that helps!

      reply
  30. Patricia Zamarripa November 8, 2018

    In a TX LLC, my husband and I will be forming an LLC to lease out properties and equipment to our existing llc and other people as well. We have been told that we should list several members (owners and voting rights only passive members) to discourage suits. If we choose manager-managed llc, where are the members listed?

    reply
    • Matt Horwitz November 23, 2018

      Hi Patricia, if you chose a Manager-Managed LLC, the Members would be listed in the Operating Agreement. I just emailed you a Manager-Managed Operating Agreement template. Hope that helps.

      reply
  31. Mike December 4, 2018

    Hi Matt, Thanks for the great info, will be making a donation shortly. Where can I download a Manager-managed Operating Agreement? Thanks Again

    reply
    • Matt Horwitz December 6, 2018

      Hi Mike, thank you so much for the donation! I just emailed you a Manager-Managed Operating Agreement template. Hope that helps!

      reply
  32. SD December 12, 2018

    First, I would like to thank you for all the wonderful information and taking the time to answer my questions.
    Here’s my situation – My daughter and I are starting an LLC in Texas. Initially, it will just be the two of us, but we think other family members may join us in the near future. They will basically be passive members while we will manage the company. Looking long term, I will step down and we will hire someone to take over my responsibilities. So, should we designate in our original Certificate of Formation that we will be Manger-Managed, or do an amendment later if and when it comes about? Either way, please send me the Manager-Managed Operating Agreement.
    Thank again for your help,

    SD

    reply
    • Matt Horwitz December 18, 2018

      Hi SD, you’re welcome. This certainly sounds Manager-managed. It may be easier to determine that now vs. filing a Certificate of Amendment later. Also, the Texas LLC Certificate of Amendment is more expensive than most other states at $150, so not sure if that’s a concern. We just emailed over the Manager-managed Operating Agreement. Hope that helps!

      reply
  33. Gene December 24, 2018

    Hi Matt. My Registered agent was filling for LLC for me. In Certificate of formation stated that – LLC is to be managed by managers. Manager 1: My name. Title: Manager.
    But on the bottom Certificate of formation- the name of the organizer – a person from Registered agent company.
    There is no a word about “members”. Does this Certificate of formation look suspicious? I expected that my title will be “owner” or “member”. But it is “manager” – sounds like this is not my company and I’m just hired.

    reply
    • Matt Horwitz January 6, 2019

      Hi Gene, the signature at the bottom is likely the LLC Organizer (which doesn’t have to be a Member). It sounds like your LLC was set up as a Manager-managed LLC and you as the LLC Manager. Usually, when an LLC is Manager-managed, just the Manager(s) are listed on the Certificate of Formation. The LLC Member(s) are listed in the the LLC Operating Agreement. So that’s where you’d be listed as owner (Member). Hope that helps.

      reply
  34. Indy January 6, 2019

    First I would like to thank you for the website. You have provided such helpful information. I am currently helping my mom with her retail clothing LLC. She plans to include her children as members but when it comes to decision making and operations of the business she wants to be the one to make those decisions. This would mean that she should set her LLC up as a Manager-Managed correct? If so than this should be designated on the Operating Agreement and not on the Articles of Organization and would the Operating Agreement be different than a Member- Manged LLC. The LLC is in the state of Michigan. Thanks in advance

    reply
    • Matt Horwitz January 6, 2019

      Hi Indy, you’re welcome! And thank you! It sounds like she’s wanting it to be Manager-managed. We’ll be updating the Michigan LLC Operating Agreement page shortly with new templates for download, including a Manager-managed Operating Agreement. For now, we emailed you over a copy. Hope that helps!

      reply
  35. MP January 24, 2019

    Hi Matt,

    Thank you for all of the information on your site. Question, I own an LLC that is currently not being used in a state different from my home state. I am looking to start a business in my home state that will be wholly owned by the out of state LLC. I’m wondering, if the Home State LLC is set up as a member managed LLC will I be sign and enter into contracts on behalf of the home state LLC? Or will it need to be set up as Manager-managed?

    reply
    • Matt Horwitz January 28, 2019

      Hey MP, the child LLC can be Member-managed or Manager-managed. If it were Member-managed, the parent company would bind the LLC into agreements. However, you as the parent company’s Member (or Manager) would be signing on behalf of the parent company.

      If the child LLC were Manager-managed (assuming by you), you would bind the child LLC into agreements and sign on behalf of the child company. Hope that helps.

      reply
      • MP January 31, 2019

        Thanks Matt, it does help? Can it be manager managed by the parent company instead of me and I still be able to bind the company to contracts? I ask because I have a home office and would like to keep my address off of the sos public website. Would you also send me the operating agreement templates for both types? Thank you.

        reply
        • Matt Horwitz February 8, 2019

          Hi MP, yes, the LLC can be manager-managed by its parent company. I hear you on that. Sure thing. We just emailed them over to you. Hope that helps :)

          reply
  36. 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
  37. 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
  38. 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
  39. 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
  40. 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

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