Thursday, April 3, 2014

Your LLC: Is it Managers by its Members or Managers?

Member-Managed LLC

Essentially, a member-managed LLC functions similar to a partnership and the management and conduct of the LLC is vested in its members. An important consideration is that each member is an agent of the LLC for the purpose of its activities and affairs.  For example, a member’s act, including signing documents in the ordinary course of the LLC’s business, binds the LLC (unless the member did not have authority to act and it would be best to explain this in an operating agreement).

Manager-Managed LLC

A manager-managed LLC is similar to a traditional corporate model (i.e. president running a corporation). The management and conduct of the Company are vested in only its managers.  Each manager has equal rights in the management and conduct of the LLC’s activities and affairs.   As such, only the managers can bind the LLC.   To avoid confusion, you may want to consider giving appropriate titles to clarify the division of responsibility.