Learn how to structure a manager-managed LLC with proper authority delegation and oversight provisions.
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Manager-managed LLCs separate ownership (members) from control (managers), similar to how corporations separate shareholders from directors. This structure is ideal for passive investors or larger LLCs.
The Operating Agreement must clearly define: manager authority and limitations, member voting rights on major decisions, manager compensation and removal procedures, and information rights for members.
Manager-managed structures work well for: real estate investments, family businesses with passive heirs, venture-backed companies, and businesses with professional management.
Clearly define what managers can decide independently vs what requires member approval. Common thresholds include major contracts, asset sales, and new capital.
Specify which decisions members vote on and required vote thresholds. Protects passive investors from unauthorized major decisions.
Establish how managers are paid - salary, profit share, or both. Distinguish management fees from member profit distributions.
Define standards of conduct for managers including duties of care and loyalty to the LLC and members.
Specify member access to books, records, and financial reports. Critical for passive investors to monitor their investment.
Q: What is the difference between member-managed and manager-managed?
A: Member-managed: all owners participate in daily operations. Manager-managed: designated managers run the business, members are typically passive.
Q: Can a member also be a manager?
A: Yes, many manager-managed LLCs have members who serve as managers. The key is the formal delegation of authority in the Operating Agreement.
Q: What decisions require member approval?
A: This varies by agreement but typically includes: amending the Operating Agreement, adding/removing members, major asset sales, and dissolution.
Q: How are managers compensated?
A: Through management fees (like a salary), profit distributions (as members), or both. The Operating Agreement should specify the structure.
Q: Can members fire a manager?
A: Yes, if the Operating Agreement provides removal procedures. Typically requires a member vote with defined thresholds.