Contact Us Today! (972) 712-1515

"The Blog"

LLC Management: Who Should Run the Shop?

Posted by Darryl V. Pratt | Nov 15, 2018 | 0 Comments

Determining who will manage the day-to-day affairs of your business is an important decision. You need to know, at the outset, who will manage operations, both for the success of your business and because the Limited Liability Company (LLC) operating agreement demands it. Luckily, LLC operating agreements are very flexible and the management structure can be tailored for your business.

● An LLC can be managed by its members or by one or more managers. 

● The management structure may be comprised of designated members, non members, or a combination of both members and non members. 

● The management structure need not be a group; a single individual (member or non member) can be appointed to manage a manager-managed LLC. 

Given the flexibility and wide range of choices, it can be challenging to decide what type of management will work best for your LLC. Here are some points to consider.

Member-Managed LLC

In a member-managed LLC, all the members share the responsibility for the business's day-to-day operations. Business decisions for the LLC are usually made through a voting process described in the operating agreement. Unlike a corporation, there is no board of directors in a member-managed LLC, but officers may be appointed. Although most attorneys do not recommend a member-managed LLC, this type of “flat” management structure may work for:

● Smaller LLCs in which all members can and will work in the business

● LLCs with simple ownership structures

● Members who get along and work well together

It is important to note, if both the articles of organization and the operating agreement of an LLC are silent on management structure, most state LLC statutes default to a member-managed LLC.

Manager-Managed LLC

In a manager-managed LLC, a single manager or a team of managers oversee the day-to-day operations of the business. Although LLC members do not control the day-to-day operations of the business, they usually retain the right to replace a manager. It is crucial that the operating agreement address the members' rights to hire and fire managers.

The manager-managed LLC is more complex than a member-managed LLC and is usually a better fit for more complex LLCs. This type of management structure works well for:

● LLCs with members who only want to be passive investors with no involvement in the LLC's operations

● Larger LLCs that require a team focused on management activities

● LLCs offering complex goods or services in which a manager's expertise is required

In most states, the articles of organization must specify the manager-managed structure to avoid the default member-managed LLC structure.

Changing LLC Management

The operating agreement should specify the process for changing the LLC's management structure. The LLC members typically must vote to approve the change, usually requiring a supermajority vote. Once approved, an amendment to the articles of organization usually must be filed with the secretary of state's office to record the change.

Conclusion

Choosing the LLC's management structure is an important part of the business planning process. Thorough, well-drafted formation documents—the articles of organization and operating agreement—are central to ensuring your LLC is structured the way you want at the outset, yet flexible enough (by a supermajority or unanimous vote of the members) to accommodate changing business needs.

We're happy to work with you to understand your business needs and ensure your LLC's articles of organization and operating agreement work together to cover your LLC's management goals. Call the Business Law attorneys at Pratt Law Group at (972) 712-1515 to schedule a consultation today for your consultation. 

About the Author

Darryl V. Pratt

With over twenty (20) of experience as a dual-licensed Attorney and Certified Public Accountant, Darryl V. Pratt has practiced law in all areas of corporate and business law, non-profit law, estate planning, probate, guardianship, asset protection planning, bankruptcy (Chapters 7, 13 and 11), real estate, and taxation.

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

DISCLAIMER Pratt Law Group, PLLC (PLG) has prepared the material on this web site, for informational purposes only; it does not constitute legal advice. Further, the material on this site does not create, and receipt does not constitute an attorney-client relationship. The information here is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this site without seeking the advice of an attorney. Members of the law firm of PLG are licensed to practice in various courts and jurisdictions; attorneys are specifically licensed to practice in state courts that are enumerated on their individual attorney profiles. We also have affiliations in particular cases with attorneys licensed in additional states. PLG does not offer any guarantee of case results. Although we are extremely proud of our excellent track record, past success does not guarantee success in any new or future case or client matter. This web site is considered advertising by the State Bar of Texas under the applicable law and ethical rules. The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. Only those attorneys who state they are Board Certified in their profiles on this website are Board Certified. All other attorneys are not Board Certified. Darryl V. Pratt is the attorney responsible for this site. The principal office of PLG is 2591 Dallas Parkway, Suite 505, Frisco, Texas 75034. Please note that the transmission of an e-mail inquiry itself does not create an attorney-client relationship. PLG cannot serve as your counsel in any matter unless you and our firm expressly agree in writing that we serve as your attorney. You should also be aware that the Statute of Limitations (the deadline imposed by law within which you may bring a lawsuit) may have expired or may severely limit the time remaining for you to file any potential claims you may have. Time is of the essence. If you believe you have a possible legal case, it is important that you seek out legal advice as soon as possible.

Menu