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Distinctions between a Member-Managed LLC and a Manager-Managed LLC

Submitted by UCS on March 17, 2022

An LLC can be either a member-managed LLC or a manager-managed LLC. In most states, an LLC is member-managed unless it is designated as a manager-managed LLC within its Articles of Organization and/or Operating Agreement/Limited Liability Company agreement. Members of an LLC can manage the company’s business without losing their limited liability status by acting as managers. Alternatively, they may appoint one or more managers to run the business. This blog points out the differences between the two designations.

What is a Member-Managed LLC?
In a member-managed LLC, each member has equal rights in the management of the business of the LLC, regardless of the size of the member’s capital contribution. All matters relating to the business of the LLC will be decided by a majority vote of the members according to section 404(a) of the ULLCA.

What is a Manager-Managed LLC?
In a manager-managed LLC, the members and the nonmembers who are designated managers control the management of the LLC. The members who are not managers have no rights to manage the LLC unless otherwise provided in the operating agreement. Depending on statutory requirements of the jurisdiction of formation, a manager could also be another limited liability company or a corporation.

In a manager-managed LLC, each manager has equal rights in the management and conduct of the company’s business. A manager must be appointed by a majority vote of the members. Managers may also be removed by a majority vote of the members according to section 404(b)(3) of the ULLCA.
While a manager of an LLC has the authority to conduct business on behalf of the LLC, such as binding the LLC to contracts, there are certain actions that only members can authorize such as:

1. Amend the operating agreement
2. Admit new members
3. Amend the articles of organization
4. Consent to merge to the LLC with another entity
5. Sell, lease, or dispose of LLC’s property
6. Consent to dissolve the LLC
7. Remove members

Whether an LLC is a member-managed or manager-managed, the designation has important consequences for determining the fiduciary duties owed by members to the LLC.

For additional questions regarding the structure of a Limited Liability Company feel free to contact a UCS Client Service Service Representative at (800)899-8648 or info@unitedcorporate.com.