Member Managed vs. Manager Managed LLC in Florida
Member Managed vs. Manager Managed LLC, is one of the first decisions that should made after the formation of a limited liability company. When compared with other business entities, the limited liability company or LLC, is a fairly new kind of legal business entity. The management of a limited liability company operates similarly to the way that a corporation functions with just a few differences. This article will discuss two options how an LLC can be managed, either member managed or manager managed.
How is the Management of a Limited Liability Company (LLC) Performed?
The owners of a limited liability company are referred to as members. A limited liability company con be comprised of either a single member or multiple members. A single member LLC is taxed differently than a multi-member LLC.
Similar to other business entities, a limited liability company is required to have at least one or more persons who are responsible for managing the company, analogous in the manner that a corporation has a board of directors.
Moreover, management of a limited liability company can either be performed by all of the members or by a professional manager who is hired by the LLC’s members. In Florida, there is no state requirement for an LLC to be member-management. So, is one management type better than another? Read on to find out.
Differences Between Member Managed and Manager Managed LLC’s
In a member managed limited liability company, all of the company’s member are involved in the decision-making process. Every member acts as an agent of the LLC and gets to participate in making decisions for the business. Although each member of the LLC holds the authority in making business decisions, issues such as loan agreements and contracts that bind the LLC must be decided by a majority of the members to be approved.
An important distinction to keep in mind is that in a manager managed LLC, contracts can only be entered and bound by managers. Members of a limited liability company that are not managers generally cannot bind the company to agreements and/or contracts unless they get written authorization from a manager.
Although a limited liability company member may counsel and/or advise an LLC manager, the manager is not obligated or required to abide by a member’s advisement.
In a manager managed limited liability company, member authority is given to either one or more managers who in turn become the company’s agents.
Managers can be a member of the subject LLC but are not required to be. Alternatively, unless your state has a limitation on business entities acting as managers, managers can be a different corporation or LLC. A majority of the states presume that LLC’s are member managed, unless the operating agreement states a designation for manager management.
Member Managed vs. Manager Managed LLC Pro’s and Con’s
Generally, the members of a limited liability company elect to have a manager in two instances; (1) when there are passive members; and (2) the company’s size.
Passive members of an LLC are usually investors in the business and while they are labeled as members, they are not involved and do not participate in the day-to-day business decisions. Based on the fact that they have no active participation in the making decisions for the company, passive members generally also have less liability. Therefore, ideally electing a manager is smart decision for a limited liability company that is predominantly made up of passive members.
Managers are also often elected in large LLC’s, due to the difficulty in organizing all of the company’s members together in order to make business decisions. In this situation, members are allowed to concentrate on their knowledge in skill that they employ in the business.
Moreover, manager managed LLC’s may be a perfect for a family owned business. In this type of limited liability company business structure, children are usually incorporated as passive members into the business by the parents who still retain full control of all business operations. In situations like this, the family business can freely grow without the children’s interference in the management of the company. Additionally, the manager managed LLC structure is preferential where family members are investors and do not want to be involved in the day to day management of the business.
In large LLC’s a professional manager is the ideal choice to run the business, because of the company’s size there is greater complexity in the decision-making process. Since a manager has authority bind the company from his or her decisions, as well as fiduciary obligations, a professional manager can be the key to an LLC’s management. Furthermore, attracting investors is easier because in many cases investors apprehensive about investing money into companies where multiple members of the LLC make important decisions. Having a professional manager may even offer the shareholders a sense of security similar to a board in a corporate business structure.
Are LLC Managers Considered Employees?
An important distinction concerning the members of an LLC is that they are owners rather than employees. An LLC member has no minimum ownership requirements and can own between 1 to 100 percent of the company. In Florida, LLC’s can be either single member LLC’s where there is only one member, or a multi-member LLC comprised of multiple members. However, in the event that an LLC member is performing management obligations, that member may receive employee compensation. The member’s owner status would be separate from his or her employment income and should be memorialized in either the LLC’s operating agreement or as an additional employment agreement.
When a professional manager is hired by the members of an LLC, that manager is considered purely as an employee.
What Are Some of the Duties in Managing the LLC?
The person or persons who are designated with the duty of managing the limited liability company, have the power to:
- Carry out all of the business financial and legal decisions
- Establish and close out business bank accounts
- Enter and/or bind the company into any and all agreements and contracts
- Purchase and/or sell investments, financial instruments, real property and vehicles on behalf of the business
- Divest and/or dispose of any assets owned by the limited liability company
- Get financing and/or borrow money for the business
- Hire and/or fire company staff such as employees, independent contractors and any necessary support staff
When Should the LLC’s Management Be Selected?
The ideal time to decide who will be in charge of managing your LLC is prior to starting the operation of the business. The operating agreement will be the controlling document and should specify the person or persons who will be managing and how decisions will be made.