Can I Change an LLC from Members to Managers?

By Stephanie Kurose, J.D.

Can I Change an LLC from Members to Managers?

By Stephanie Kurose, J.D.

While there are pros and cons to having a member or manager-managed limited liability company (LLC), the good news is that members can always elect to switch structures in the future as long as they follow certain procedures. This is a common type of business structure that operates as an independent entity separate from its owners, called members.

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LLC Basics

When forming an LLC, the members must decide whether they will manage the business or if they will have nonmember managers. They must indicate which option they choose on the articles of organization. This kind of company combines the most favorable characteristics of a corporation and a partnership. It provides flexibility and is taxed as a pass-through entity similar to a partnership, meaning its profits pass to the owners who pay taxes on their income instead of the company also paying income taxes.

Like a corporation, however, it provides its members with personal liability protection so that, if the business is ever involved in a lawsuit, creditors cannot pursue the owners' personal assets, except in very narrow circumstances. State law governs LLCs, so it is important to follow your state's rules during formation.

Members and Nonmember Managers

There are no rules governing how many members there can be. However, they all must have at least one owner. Each individual owns either a percentage of the company or a number of units, which is similar to shares in a corporation. On the other hand, nonmember managers have no ownership interest. They are outside people who the owners appoint to run the business and are considered employees.

If the LLC is small, members may decide to run it themselves. This obviously requires them to be more heavily involved in the operations. If it is larger and has dozens of owners, though, it may be unrealistic for them to always make the day-to-day decisions required when managing a business. In that case, it may be wiser to form as a manager-managed entity.

Changing an LLC from Members to Managers

To formally change management structure, the articles of organization must be amended. To do this, owners must follow the procedures set forth in the LLC's operating agreement. The operating agreement typically outlines procedural aspects of the business, similar to a corporation's bylaws.

To amend the articles of organization, the members must vote to approve any changes. The agreement should dictate what constitutes a formal vote, but keep in mind that state law may require unanimous consent from everyone. If state law requires a larger majority for the vote, the LLC must meet that instead of following what's in its operating agreement. After the voting process, the company must file the amended articles with the state business authority, typically the Secretary of State.

If you want to begin the process of changing the management structure of your LLC or are looking for more information, review your Secretary of State's website to find out what else is required of you before doing so. You'll also want to ensure that all owners are in agreement as to changing management structure before making any chances.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.