A limited liability company is an independent legal entity formed under your state’s laws. If you choose to organize your business as an LLC, you must also decide whether your LLC should be managed by its members or by non-member managers. While it can be a hassle to alter this decision later, you can change your management structure after you start your business.
Members Vs. Managers
All LLCs have at least one member, or owner, but your LLC can have an unlimited number of members. Each owner’s interest is represented by a percentage of ownership or by a number of units, which are similar to shares in corporations. Members often manage the company themselves, especially in a small LLC. Non-member managers have no ownership rights in the LLC. They are appointed by the LLC’s members and are employees of the LLC.
If you have only a few members and all members intend to be heavily involved in your LLC’s operations, a member-managed structure may be a good option for you. However, if your LLC has dozens of members, it may be impractical for the members to make day-to-day management decisions together. Similarly, if your LLC has owners who prefer to provide operating capital for the LLC without being involved in the business’ day-to-day operations, they may not want to manage the LLC. Thus, your members can choose outside managers.
Articles of Organization
Your LLC is formed when you file articles of organization with your state’s registration office, often the secretary of state, along with a filing fee. The articles list the basic information about your business, including your business name, address and statement of purpose. Your LLC typically must elect to be member-managed or manager-managed at the time you file your articles of organization. There may even be a place to record this election on your state’s articles of organization form.
LLC members can vote to appoint managers to run the LLC at any time. Whether you initially select a member-managed or manager-managed structure, you can change your election later by amending your articles of organization. Typically, changes to an LLC’s articles require the LLC’s members to vote approving that change, and your state’s laws may require unanimous consent from all members. You can also include provisions related to the management process in your LLC’s operating agreement, an optional document that provides further details of your LLC’s operations.