What is an LLC:
An LLC, which stands for Limited Liability Company, is a form of business that functions like a corporation but, in many circumstances, has the advantage that its members may not be held personally liable for any debts or liabilities accrued by the LLC. One of the biggest concerns most LLCs have is whether the LLC should be managed by all of its members within the LLC or should the members designate managers to make decisions in regards to the day-to-day procedures within the LLC. Both of these management options have their benefits, which will be discussed below.
The Member-Managed LLC:
One of the primary elements to take into consideration when choosing the best management system for your LLC is observing the size of the LLC itself. The more common choice amongst LLCs, especially those with a smaller number of members, is an LLC that is managed by all of the members of the LLC. A member-managed LLC means that the LLC is run by all of the members and all of the members share the duties that are required in order to keep the LLC operating properly. This type of management system is ideal if each of the members is extremely vested in making sure that the LLC is operating efficiently. When an LLC is member-managed, each member has an equal right to participate in the management aspects of the LLC and each member acts as an agent on behalf of the LLC. Because each member of the LLC acts as an agent, each member has the authority to make decisions on behalf of the LLC without giving notice to the other members or having a meeting to discuss the decisions.
The Manager-Managed LLC:
If an LLC has a larger amount of members, it may be preferable that either a sole manager or group of managers oversees the operation of the LLC. When the LLC is larger in size, there becomes a complexity within the LLC that all of the members may not be able to properly understand and manage. The most important factor in creating a manager-managed LLC is that this structure of management system must be clearly and expressly stated within the Operating Agreement for the LLC. If it is not clearly stated within the LLC’s Operating Agreement then, under North Carolina Statutes, the management structure is not valid, thus forming a member-managed LLC in which all of the members of the LLC can act as agents on behalf of the LLC. Once the “manager” structure has been expressly stated within the Operating Agreement there are other factors to take into consideration. The first concern that most people may see upon the horizon once they have decided to create a manager-managed LLC is who can become a manager? There are several different “manager” types that can be chosen in regards to managing the LLC on behalf of the members. One type is when an LLC has one manager who acts on behalf of the LLC, while another type is when there are multiple managers who act on behalf of the company. Also, these managers can be members within the LLC or the manager can be a non-member of the LLC. A manager-managed system is ideal for an LLC who has members who wish to remain passive members within the LLC and do not wish to be involved with the tasks of the LLC. The manager-managed structure is also ideal when important decisions need to be made, allowing the managers to come to a more effective and faster resolution to an issue. This is ideal in a larger corporations, where a multitude of members may not be able to come to an agreement on the issue.
Conclusion:
The task of creating an LLC may seem daunting and even more daunting is deciding how it should be managed. When deciding on what type of management structure will best suit the needs of the LLC, the explanations above should provide some initial guidance needed in order to make the best choice for your LLC. However, please note that no matter how ideal the manager-managed LLC may seem, if it is not expressly written within the LLC’s Operating Agreement, North Carolina will consider your LLC as member-managed by default. Thus, it is always important that if your LLC diverges from the standard member-managed structure, to put that decision into writing within an Operating Agreement. Please contact your local Corporate Attorney for assistance in properly setting up your LLC.