Member-Managed vs Manager-Managed LLC: What's the Difference?

What is a Member-Managed LLC?

In a member-managed LLC, the owners (also known as members) take charge of the business’s daily operations. Picture it like owning a small, family-run shop where everyone is hands-on with everything from marketing to buying supplies.

This type of management is the default structure in many states. If you don’t specifically choose otherwise when setting up your LLC, you’re likely opting for a member-managed LLC. In this setup, all members have equal say in business decisions—big or small.

For smaller companies, especially startups or family-owned businesses, this structure makes the most sense. Members maintain control, avoid the cost of hiring a manager, and have the flexibility to steer the business however they see fit.

Why Choose a Member-Managed LLC?

• You want full control: A member-managed LLC allows you to be involved in every decision, from major business moves to everyday tasks. Think of it as running your household—you’re involved in everything.
• You want to save on costs: There’s no need to hire a manager in a member-managed structure, meaning fewer payroll expenses and no need to deal with manager salaries or employment taxes.
• You prefer simplicity: This setup works best for small businesses that don’t need complex structures. If you’re just starting out or have a few members who work well together, a member-managed LLC provides a straightforward way to operate.

What is a Manager-Managed LLC?

A manager-managed LLC allows the members to take a backseat while hiring one or more managers (either members or outsiders) to handle the day-to-day operations. Think of it like owning multiple rental properties—you may not want to deal with every tenant issue yourself, so you hire a property manager to handle the logistics.

In larger businesses, or in cases where members don’t have the time or expertise to manage daily operations, a manager-managed LLC structure makes sense. It allows for faster decision-making without needing every member’s input on every choice.

Why Choose a Manager-Managed LLC?

• You have a larger business: If your LLC has many members, having everyone involved in daily operations could be chaotic. A manager-managed LLC allows for more streamlined decision-making.
• You want to attract investors: Investors may prefer a more passive role, leaving day-to-day operations to professional managers while they focus on returns.
• You value privacy: In many states, LLC members must be listed on public documents. If you prefer to keep member names private, listing managers instead can protect their privacy.

Member-Managed vs. Manager-Managed: Which is Right for You?

The choice between member-managed vs. manager-managed depends largely on the size of your business, the expertise of your members, and how much direct control you want. Here are a few questions to consider:

1. How big is your LLC? Small businesses usually opt for member management, while larger ones often need a manager-managed structure for efficiency.
2. Do members have time to manage the business? If you and your members are hands-on, a member-managed LLC makes sense. If your members prefer to focus on broader goals, go with a manager-managed LLC.
3. What’s your long-term plan? If you expect rapid growth, a manager-managed structure can better accommodate scaling your operations.

LLC Members vs. Managers: Common Questions Answered

1. Do I need to specify the management structure in my LLC’s paperwork?
Yes. Some states require you to document your management structure in the Articles of Organization or Operating Agreement. By default, your LLC may be member-managed unless you specify otherwise.

2. What’s a managing member?
A managing member is an LLC owner who also acts as a manager. This is typical in manager-managed LLCs, where members can still hold management roles if they choose.

3. Can an LLC have multiple managers?
Yes! There’s no limit to how many managers your LLC can have. You can appoint as many as you need to keep operations running smoothly.

Here's how we can add a section that answers the question of how to choose between manager-managed and member-managed, and explain the role of the operating agreement in this decision:

So, How Do You Actually Choose Between Manager-Managed and Member-Managed?

Once you understand the differences between the two structures, the next step is figuring out how to make the choice official. The good news? It’s all done through your LLC’s Operating Agreement.

An Operating Agreement is a legal document that outlines how your LLC will be run. It’s essentially the blueprint for your business—covering everything from member responsibilities to profit distribution. When it comes to deciding if your LLC will be member-managed or manager-managed, this document is where you’ll make it official.

In many states, you won’t be required to file your Operating Agreement with the government, but it’s still a critical internal document. By specifying the management structure here, you avoid confusion later on and ensure that everyone—whether members or managers—knows their role.

Ready to make the choice? Get started with Stellar.

Choosing between a member-managed or manager-managed LLC comes down to how involved you want to be in running your business. A member-managed LLC puts control in the hands of owners, making it ideal for smaller businesses or those who want to be involved in day-to-day decisions. On the other hand, a manager-managed LLC gives you flexibility—ideal for larger companies or when you want to focus on big-picture goals. Evaluate your business needs, and don’t hesitate to consult with a legal professional for personalized advice.

Stellar assists business owners in the pre-formation, formation and post-formation process. Which includes setting up your operating agreements and more. Contact us today to launch your business with ease.

‍