Does an LLC Have a Board of Directors?

By Cindy DeRuyter, J.D.

Does an LLC Have a Board of Directors?

By Cindy DeRuyter, J.D.

In certain states, a limited liability company, or LLC, can have a board if its owners (also referred to as members) choose to structure themselves in this manner. However, this is not required, as is the case with corporations. The company could instead operate as a member or manager-managed entity.

Coworkers discussing around a table

Member vs. Manager-Managed

The people who invest in this type of entity are the members. In some states, they can also manage the business. This means they handle the day-to-day activities. They make decisions themselves rather than relying on outside parties who have no stake in the company. That does not necessarily mean that everyone has equal decision-making authority. The operating agreement for an owner-managed LLC should establish their respective voting and governance rights.

For example, if three people own a company, and one of them provided 80% of the capital, this individual might hold greater rights and powers when making decisions for the business. Alternatively, this individual might designate one of the other two owners to do so, as the capital contributor might simply wish to remain passive in the actual decision-making processes.

Another type is a manager-managed structure. Just as with member management, the operating agreement will identify who has decision-making authority. With this, one person usually has the authority to make certain decisions about running the business.

However, the owners can—and often do—limit the manager's right to make major decisions, choosing instead to retain those rights themselves. For example, the operating agreement may specify that certain processes such as adding or removing members, setting budgets, acquiring real estate, or other significant decisions rest with the owners.

Certain states allow entrepreneurs to form as board-managed entities. In this case, two or more people make business decisions. Entities that operate in this manner often resemble corporations in that the individuals have oversight for and influence over the management and decision-making. Those with multiple owners may prefer this format so each of them can appoint one or more people to represent their viewpoints.

Operating Agreement Provisions

These agreements are important (and almost always a requirement), as they provide the framework for the entity's governance. Members should consider the various processes in the document itself. This includes how new people will join, what happens when someone dies or otherwise leaves the business, how ownership interest is divided among everyone, and more.

Unlike corporate boards of directors, which corporations must establish pursuant to state laws, those created under an LLC exist under the operating agreement. This gives the members greater flexibility in determining who will actually such authority, and what their roles and responsibilities are. The agreement will also outline what happens if someone resigns or is otherwise asked to leave the company.

If you want to create this type of entity, understand the various management structures that you and the other owners can put into place before taking next steps. Ensure that everyone is in agreement as to how the business will be managed, and who will be in charge of the daily operations.

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.