All state laws require a corporation to have a board of directors that is elected by the shareholders. This is a form of centralized management. Although an LLC, or limited liability company, shares some characteristics with a corporation, the requirement for a board of directors is not one of them. However, most state laws regarding an LLC's management structure are flexible enough that an LLC could have a board of directors if LLC members so choose.
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State LLC laws refer to the owners of an LLC as members. An LLC can generally be formed with only a single member or have an unlimited number of members. Unless otherwise specified, the default provisions of state LLC laws typically vest management authority in all members in a percentage equal to the members' capital contributions to the LLC.
If LLC members choose not accept the default management provisions of the state's LLC law, the members can designate one or more managers with the authority to act on behalf of the LLC and run its day-to-day operations. In most states, the document filed to create the LLC, typically called the certificate of organization or articles of organization, requires that the LLC organizer specify whether the LLC will be managed by all members or by a designated manager. A manager does not have to be an LLC member.
Delegation of Authority
The flexibility provided in state LLC laws gives the designated manager or member-managers the authority to delegate responsibility, whether it is for day-to-day operations or a special project. In these situations, an LLC's management structure may begin to resemble that of a corporation by using titles such as vice-president or treasurer. If a group of company personnel are formed for a special project, this may be designated as a board or committee.
Although as of December 2010 only two states -- Missouri and New York -- require an LLC to have a written operating agreement, an LLC with multiple members that designates a manager or managers should consider having an operating agreement that clearly specifies the LLC's management structure. This can be important for several reasons. For example, a lender or government agency may require proof of authority to act on the LLC's behalf. Also, the operating agreement can be used to specify a plan of succession in the event that the manager is unable to carry out his duties.
References & Resources
- Delaware.gov: Division of Corporations Legal Business Structures Table
- Oklahoma Department of Commerce: Business Structure Matrix
- Delaware Code: § 18-402 Management of limited liability company
- Nevada Legislature: NRS 86.161 Articles of organization: Required and optional provisions
- Delaware Code: § 18-407. Delegation of rights and powers to manage.