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Choosing Your LLC Management Structure: Member-Managed vs. Manager-Managed


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When setting up a Limited Liability Company (LLC), one of the first decisions you’ll need to make is how your business will be managed. This decision can impact everything from daily operations to long-term strategic planning. There are two primary types of LLC management structures: member-managed and manager-managed. Understanding the differences between these two options is crucial for making the best choice for your business. Let’s break down the structures.

What is an LLC?

Before discussing management structures, let’s clarify what an LLC is. An LLC stands for Limited Liability Company. It’s a business structure that protects its owners (called members) from being personally liable for the company’s debts or liabilities. If your LLC owes money or gets sued, your assets (like your house or car) are usually protected.

Member-Managed LLCs: A Hands-On Approach

In a member-managed LLC, all members (owners) actively participate in running the business. Think of it as a team where everyone has a say in things, from daily operations to big decisions.

Pros of Member-Managed LLCs:

  1. Simplicity: This structure is straightforward to set up and maintain. You don’t need to hire outside managers or designate specific people to handle day-to-day operations.
  2. Cost-Effective: It’s generally less expensive since you’re not paying for external managers.
  3. Equal Say: Every member has a direct say in business decisions, which can create a more democratic environment.

Cons of Member-Managed LLCs:

  1. Potential for Conflict: With everyone having a say, disagreements can arise, potentially slowing down decision-making processes.
  2. Time Commitment: Members must be willing to invest time in managing the business, which can be challenging if they have other commitments.

Member-managed LLCs are typically best suited for small, tight-knit groups with complementary skills and a unified vision for the business.

Manager-Managed LLCs: Delegating for Efficiency

In a manager-managed LLC, the members elect one or more managers to handle the daily operations and make decisions on behalf of the company. These managers can be members themselves or outside individuals hired for their expertise.

Pros of Manager-Managed LLCs:

  1. Efficient Decision-Making: Having designated managers can streamline operations and decision-making, especially in larger or more complex businesses.
  2. Attracting Investors: This structure can appeal more to investors, as it often signifies a clear division between ownership and management.
  3. Focus for Members: Members who aren’t managers can focus on broader strategic goals or outside endeavors, knowing the business is in capable hands.

Cons of Manager-Managed LLCs:

  1. Complexity: It’s a bit more complicated to set up, as you need to establish clear management roles and potentially hire outside managers.
  2. Reduced Control for Members: Members who aren’t managers have less direct control over daily decisions, which can be a significant shift for those used to being closely involved in all aspects of their business.

Manager-managed LLCs are generally better for larger, more complex businesses or those looking to scale and attract external investors.

Making the Decision

Choosing between a member-managed and manager-managed LLC depends on several factors, including the size of your business, your growth ambitions, and how much control members wish to have over daily operations. Here are some considerations to help guide your decision:

Consider Your Business Needs:

  • Complexity and Size: Larger, more complex businesses benefit from a manager-managed structure to ensure efficient operations.
  • Member Involvement: A member-managed structure might be more appropriate if all members are interested in being actively involved in management.

Think About the Future:

  • Growth Plans: If you plan to bring in investors or scale up, a manager-managed LLC might provide the structured management approach needed to support these goals.
  • Flexibility: Consider which structure offers the flexibility you need as your business grows and evolves.

Legal and Operational Considerations:

  • State Laws: As laws and requirements vary, check your state’s regulations regarding LLC management structures.
  • Operating Agreement: An explicit operating agreement is crucial regardless of your chosen structure. This document should outline your LLC’s roles, responsibilities, and decision-making processes.


Both member-managed and manager-managed LLCs have their advantages and disadvantages. The right choice depends on your specific business goals, the level of involvement desired by the members, and the complexity of your operations. By carefully considering your needs and planning for the future, you can select a management structure that supports your business’s success.

Remember, the decision isn’t set in stone. As your business evolves, you can reassess and adjust your management structure to serve your changing needs better. The most important thing is to make a choice that aligns with your vision for your business and ensures smooth, effective management and operations.

FAQs about Member-Managed vs. Manager-Managed LLCs

  • Can an LLC switch from member-managed to manager-managed or vice versa?

    Yes, an LLC can switch between member-managed and manager-managed structures. This change typically requires amending the LLC’s operating agreement and possibly filing an amendment with the state’s LLC registration office. The process varies by state, so it’s essential to consult local regulations and perhaps seek legal advice.

  • How does the management structure of an LLC affect taxes?

    The management structure of an LLC does not directly affect its taxation. LLCs can be taxed as sole proprietorships, partnerships, or corporations, regardless of whether they are member-managed or manager-managed. However, the choice of tax classification has more significant implications for how profits and losses are reported and taxed.

  • Can a member-managed LLC hire employees to help with operations?

    Yes, a member-managed LLC can hire employees to help with operations. Hiring employees keeps the LLC’s management structure the same. Members of the LLC still retain the ultimate authority over the business decisions, while employees are hired to perform specific tasks or roles within the company.

  • How do investors view member-managed vs. manager-managed LLCs?

    Investors may prefer manager-managed LLCs because this structure often indicates a clear separation between ownership and daily management, which is a more professional and scalable approach. However, the preference can vary depending on the investor’s goals, the specific business, and the effectiveness of its management team.

  • Are there specific roles or titles for managers in a manager-managed LLC?

    Managers can be given specific titles in a manager-managed LLC based on their roles, such as CEO, CFO, or Operations Manager. These titles help clarify their responsibilities and authority within the LLC and external parties. The roles and titles will depend on the LLC’s operational needs and the managers’ expertise.

  • How does decision-making occur in a manager-managed LLC?

    In a manager-managed LLC, decision-making authority is primarily vested in the appointed managers. They make decisions regarding the company’s day-to-day operations and strategic direction. However, the operating agreement may require certain vital choices to be approved by a vote of the members, such as amending the operating agreement, taking on significant debt, or selling the business.

  • What happens if there's a conflict among members in a member-managed LLC?

    Conflicts among members in a member-managed LLC are typically resolved through discussion and negotiation, adhering to the dispute resolution procedures outlined in the operating agreement. This may involve mediation or arbitration. The operating agreement should include clear procedures for resolving disputes to prevent conflicts from hindering the business’s operations.

  • Can a manager-managed LLC have multiple managers?

    Yes, a manager-managed LLC can have multiple managers, which is common in larger or more complex businesses. The managers can be members of the LLC, non-member individuals, or a combination of both. Having multiple managers allows for the distribution of management tasks and can bring diverse expertise to the business.

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