Managing an LLC

A limited liability company may be managed however you like. When you set up a limited liability company (LLC for short), you create an operating agreement that will determine the management structure of the company. It should contain sufficient explanation of how members will manage the LLC, how managers are elected, and how managers will vote on operating and managing the business.

Limited Liability Company Structures

There are two basic LLC structures: member-managed and manager-managed. Most LLCs are member-managed; this means that all the members jointly run the business.

Many small businesses follow this structure. Member-managed is the simplest structure and means that every member has the authority to act on behalf of the business. If all your members will have direct involvement in the management of the company, then a member-managed LLC usually makes the most sense.

Internally, the members will need to agree on how and when they will vote on certain matters of the LLC. They should also have an agreement that no member will act on behalf of the LLC until the proper votes are obtained.

Understanding Manager-Managed LLCs

Some LLCs are manager-managed. This means that they designate one or more members to be managers or perhaps they hire one or more outside managers. It’s possible, as well, to have an LLC that is managed by a combination of members and outside managers.

A manager-managed LLC is generally used when there are passive members in the LLC. Passive means investors in the LLC who do not actively manage or otherwise operate the business of the limited liability company. It could also mean members who contribute to the mission of the business, but are not interested in daily operations. If your limited liability company has passive members, it is usually recommended that you have a management layer between the members and the managers.

Getting Help

If you need help setting up a limited liability company, it makes economic sense to hire a business attorney to explain the state’s relevant laws and regulations regarding this particular type of business structure.

Case Studies: Managing an LLC

Case Study 1: The Tech Start-up

A group of entrepreneurs formed an LLC called TechSolutions to develop innovative software applications. They opted for a member-managed structure as all the members were actively involved in the company’s operations. By creating a comprehensive operating agreement, they defined the roles, responsibilities, and decision-making processes within the LLC.

Unanimous consent was required for major business decisions, ensuring collaborative management and maximizing each member’s involvement.

Case Study 2: The Real Estate Investment Company

A real estate investment firm, RealtyInvest, established an LLC to manage their property portfolio. Given the diverse group of investors, they chose a manager-managed structure. They appointed experienced property managers to oversee day-to-day operations, property maintenance, and tenant relationships.

The investors, as passive members, relied on the managers’ expertise and decision-making capabilities. This structure allowed the investors to focus on their investments while ensuring professional management of the properties.

Case Study 3: The Hybrid Structure

A technology startup named InnovateTech formed an LLC with a combination of active members and outside investors. The active members handled product development, marketing, and operations, while the investors provided funding and strategic guidance. To accommodate the different roles and interests, InnovateTech implemented a hybrid management structure.

The active members made operational decisions, while the investors had the ability to elect managers responsible for financial oversight and alignment of business goals. This structure balanced the involvement of all parties and leveraged the expertise of both the active members and the investors.