When you decide to set up a new business as a limited liability company, selecting the appropriate limited liability company management structure for your venture is highly important. This choice impacts everything from your personal liability to how you pay taxes and even the way you raise capital.

A Limited Liability Company (LLC) is a legal entity which is managed by its members. A member is defined as an individual who has an ownership interest in the company. LLCs have a more streamlined organizational structure compared to corporations due to the lack of formal structures such as a board of directors. An LLC provides its members with more flexibility and control, it also limits personal liability.

There are two types of LLC management structures as following:

  1. Member-Managed LLC

A member-managed LLC may consist of single or multiple members. Each member has the authority to make decisions to bind the LLC. This structure provides each member with the responsibility to play an active role in the management and operation of the business.

One of the key advantages of a member-managed LLC is simplicity. It doesn’t require formal appointments or separate management, making it more straightforward to operate. However, it may become more complex as the number of members increases.

A member-managed LLC may be suitable if the following is true:

  • The business is small.
  • The business has limited resources.
  • The business has a low number of members.
  • Members have sufficient management experience and skill.
  • All members want to be active participants in operational decisions.

To establish the organizational structure, an operating agreement may be created. An operating agreement is a binding contract between members. It can formalize conditions such as member voting rights, capital contributions, buy-out provisions and decision making.

  1. Manager-Managed LLC

Limited liability companies can have the benefit of a manager handling their daily operations. It gives the members more freedom to focus on larger decisions.

This management style is ideal for larger LLCs, where not all members want to be involved in daily operations. The members appoint one or more managers who may or may not be members themselves. These managers handle the daily management and decision-making responsibilities of the LLC.

Managers can be individuals, entities, or companies hired to oversee operations. They are often responsible for setting the strategic direction, hiring staff, and managing business finances. This structure is helpful when some members are silent investors or when the LLC wants to tap into professional management expertise.

A manager-managed LLC may be suitable if the following is true:

  • The business is large and complex.
  • Members lack sufficient management experience and skill.
  • All or some members do not want to be active participants in operational decisions.

Unlike in a member-managed LLC, members of a manager-managed LLC cannot make decisions to unilaterally bind the company. Members are also unable to interfere with the LLC manager’s operational decisions. However, members can make structural decisions and changes to the company.

When launching a business, it’s crucial that you have a solid foundation that will encourage growth. When choosing the right limited liability company management structure for your business, the organizational flexibility combined with pass through tax status explains the explosive growth of the LLC legal entity structure.

“Consortio Law Firm” as a firm of entrepreneurs ourselves, we know how to start businesses off the right way.

Hiring an attorney reduces the chance that your company will run into trouble down the line and helps ensure that you’re armed with the information and documents that you need for success.

For assistance with starting your business or growing the one that you already have, Contact us Now via the phone number 002 01028806061 or send us a WhatsApp or email Info@consortiolawfirm.com.