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What is the Difference Between a Manager Managed #LLC and a Member Managed LLC?

The state of California substantially changed many laws related to limited liability companies (LLCs) in recent years. One of the major changes involved the default rules that apply in the absence of certain language in the LLC operating agreement, in terms of whether a LLC is manager managed or member managed. Under the new law, unless both the articles of organization filed with the Secretary of State and the operating agreement state otherwise, an LLC is member managed by default.

In a manager managed LLC, unless the operating agreement contains a different provision, managers have equal rights in the management and actions of the LLC. As a general rule, a majority of managers may decide matters in the ordinary course of business. However, all members of the LLC must approve the following actions:

·      The sale of assets
·      An act outside the ordinary course of business
·      A merger or conversion
·      An amendment to the operating agreement

The revised law contains no specific definition for “matters in the ordinary course of business.” As a result, if a member disagrees with a decision made by a majority of managers, he or she theoretically can contest the decision as falling outside of the ordinary course of business. The manager managed LLC often is created by individuals who simply want to invest in the business, and not necessarily be involved in the LLC’s daily operations. It also may be a suitable business structure for particularly complex companies or companies in which members have limited managerial experience. In some cases, a member of the LLC serves as a manager, but in other cases, an outside person is chosen as a manager.

On the other hand, in member managed LLCs, all members typically share in the day-to-day operations of the business. Members who choose this management structure usually want to be directly involved in managing and running the business.

An LLC is a flexible entity that allows its members to tailor the #operations and #management to suit them. Whether you’re looking to hire a manager for your LLC or if you have any questions about your LLC structure please feel free to reach out.