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.

Do You Have A Written Partnership Agreement? - Some Things to Think About

While a written partnership agreement is not legally required in order to establish a partnership, a well-drafted partnership agreement will allow you and your partners to decide in advance how you would like to handle certain situations when they arise.

Some items that should be covered in your written partnership agreement are:

1.              Each partner’s contribution to the partnership (i.e. time, money or skill);

2.              The allocation of profits, losses, and draws;

3.              Each partners’ authority and management duties;

4.              How to admit new partners;

5.              What happens if there is a bankruptcy, withdrawal, or death of a partner, and

6.              How to resolve disputes such as by arbitration, mediation or in a courtroom.

By having a written partnership agreement, you help to avoid misunderstandings which may occur during the course of your business relationship.  And remember, your partnership agreement does not have to be set in stone, it can always be amended and revised at a later date should events change.