Section A: Member-Managed and Manager-Managed LLCs
A member-managed LLC and a manager-managed LLC are two different ways of organizing the management structure of a limited liability company. The main difference is who has the authority and responsibility to make decisions and run the business on a daily basis. Here are some key points to compare them:
A member-managed LLC is the default option in Washington, unless otherwise specified in the operating agreement. In this structure, all the members of the LLC have equal rights and duties to manage the business. They can make contracts, hire employees, borrow money, and do other tasks on behalf of the LLC.
A manager-managed LLC is an alternative option that requires a formal designation in the operating agreement. In this structure, the members delegate the management authority to one or more managers, who may or may not be members of the LLC. The managers have the sole power and responsibility to run the business, while the other members are passive investors who do not participate in the decision-making.
There are two primary advantages to a manager-managed LLC:
- The members do not owe fiduciary duties to each other if there is a manger. In a member-managed LLC, members owe the duty of loyalty and the duty of care. But members do not have those duties if a manager is appointed.
- Although not required in a member-managed LLC, a manager-managed LLC must have an operating agreement. A key benefit of operating agreements is that they create formal structure that is well known and understood in many industries. That can make it easier for lenders and buyers to verify that the manager has the right to bind the LLC.
Although those aren’t the only reasons to use a member-managed LLC, they alone are enough for me to always recommend having a manager.
For any questions regarding LLCs, email me at info@beresfordlaw.com or give me a call at (425) 776-4100.