Manager-Managed Definition

To many small businesses, the business structure of a limited liability company (LLC) is attractive because of the decreased risk of personal liability it comes with. However, a lot of aspiring small business owners may not know that their LLC can be member-managed or manager-managed. Because owners are called members, member-managed means the LLC is managed by the owners. Conversely, the definition of manager-managed is when an LLC operates through the use of a hired manager or a small group of managers elected by the LLC’s members. Members often elect this structure when they prefer to take a backseat to the day-to-day operations of the LLC.  

Understanding the LLC Structure

Understanding the LLC structure means understanding the roles of each person within the organization. An LLC member is an owner of an LLC. This is similar to how shareholders own a corporation. Members appoint a manager to manage the company, much like shareholders appoint a board of directors to manage a corporation or another legal entity. And these appointed managers can be members, or they can be outside people the members hire.

Benefits of a Manager-Managed LLC

Electing for an LLC’s structure to remain manager-managed benefits the members of the LLC as far as the workload is concerned. One of the key manager-managed LLC advantages is that the members get to share in the LLC’s profits while the managers handle the daily business operations. Members don’t need to oversee the daily operations of the LLC. In fact, state laws may prohibit the amount of influence that LLC members have in the management of the business when it is manager-managed. However, the LLC’s Operating Agreement may state otherwise. This structure is probably the most attractive option for members that also have full-time jobs or other commitments, especially at the beginning of a company.

Manager-Managed LLC Considerations

With a manager-managed LLC, there are a few things you may need to consider before deciding if this structure is right for your business. 

Operating Agreements

It’s a smart move for an LLC to maintain at least a standard Operating Agreement. An LLC’s Operating Agreement will clearly outline whether the business intends to remain member-managed or if it will take on the manager-managed structure. 

We offer Operating Agreement Templates to help your LLC establish a structure and framework that will help grow your business. The Operating Agreement is similar to a corporation’s bylaws in that it provides a guideline for the company’s operations. Most importantly, it should detail rules for election and removal of managers and even members of the LLC. The Operating Agreement will also detail who has the authority to bind an LLC under a contract. 

For more information about what to include in an operating agreement, read our manager-managed LLC operating agreement guide.

Taxes and Liability

One of the most attractive benefits for aspiring LLC business owners is the tax advantages this business model offers. The LLC structure allows members to benefit from pass-through taxation. This means that LLC income doesn’t get taxed at the company level, but the profits pass through to the members, who only get taxed at their personal income tax rate. 

Summary

When it comes to an LLC, the definition of manager-managed is the structure where members elect a manager or a small group of managers to handle the daily operations of the LLC. This structure allows members to share in the LLC’s profits but precludes members from having a say in the management of the LLC. 

We Can Help

In your research to find the best LLC structure for you, don’t get tripped up by the manager-managed definition. We believe that starting a business should be as stress-free as possible. That’s why we offer Business Formation Services to help you file the initial paperwork. You can customize our template to fit the needs of your business now and as it grows in the future. We are here to assist you with the success of your business.