What does it mean to be a managing member of an LLC?

February 22, 2018 - Posted by: admin - In category:

taxes - No Responses

As the name indicates, the managing member is the manager of a member-managed LLC.

Please note that the organizational and management structure of limited liability companies (LLCs) varies greatly.  Some LLCs are single-member (i.e., only one owner) and some are multi-member entities.  There are LLCs which are member managed, some which are manager-managed and then there is the hybrid approach of having a managing member.  Sometimes banks and state agencies assume that the LLC is either strictly member or manager managed.  In those circumstances, there is often no place for the bank or state employee to “check the box” that relates to an LLC being run by a managing member.  And when that happens, you, your accountant or your attorney may need to have a conversation or two with someone at the bank or government agency to explain the concept of managing member and how it is more akin to “member-managed” than it is to “manager-managed” in the context of such strict grouping.  By the way, there are member-managed LLCs which do not have managing members and instead simply operate by and through the “regular” members.  Also, a manager-managed LLC is not necessarily one that has a managing member.  Rather, a manager-managed LLC typically has a designated person or company that serves as the manager and which may or may not also be a member (often not also a member)

How would you know if a particular LLC is manager-managed, member-managed or run by a managing member? An excellent place to start is always the foundational legal documents (that’s a good rule of thumb for most things), and in this case, you would look to the LLC operating agreement.  In that document, there should be a few paragraphs about management of the LLC and within those provisions, it should spell out management, who is authorized to act on behalf of the LLC vis-a-vis third parties and voting by member and related items Alternatively, the provisions covering voting among members are sometimes part of a separate section, though usually located fairly close to the management section in the LLC operating agreement.

To summarize, a managing member is generally in charge of a member-managed LLC which has elected to have one “executive” in charge of day-to-day operations and dealing with most matters on behalf of the LLC.  Not all member-managed LLCs have a managing member–some are simply run by the collective voting of the members (often majority vote).

 

Leave a Reply