Rights and Authorities of the Manager of an LLC

By Larissa Bodniowycz, J.D.

Rights and Authorities of the Manager of an LLC

By Larissa Bodniowycz, J.D.

A limited liability company (LLC) has options when it comes to the day-to-day operations of its business. Some or all its owners (called members) can manage it, or they can hire managers with no ownership interest to run it. The managers, whether owners or independent third parties, are responsible for operating the business and have the right to act on behalf of it.

Coworkers sitting around a table

This type of authority come from the laws of the state where the company was formed, the operating agreement, the statement of authority, and sometimes, other governing documents drafted for the operation of the business.

State Law

All states have a set of laws that govern such entities within the state. You can usually find these laws within the state's business code, in a chapter with a name like "Limited Liability Company Act." Each state's applicable laws set out default rules for this type of entity, including rules regarding a manager's rights and responsibilities. In general, they have broad power to take actions on behalf of the company, such as entering into contracts. To balance this power, they have a duty of care and loyalty to put the owners' and entity's best interests above all else.

In most states, there are also prior court decisions regarding LLCs, including a manager's powers. Such prior legal outcomes are just as binding as they would be if they were written into the state's laws.

Operating Agreement

Most LLCs have an operating agreement, which provides a variety of basic business processes, including what happens if an owner wants to sell their interest, the owners want to dissolve the company, and more. The agreement may modify or add to the state's default rules regarding the power and responsibility of managers, or supervisors.

They also contain information regarding what authority the business can grant or remove from its managers. For example, some might contain a specific list of actions that the supervisors can take, while others identify a list of actions that the managers may not take. Others may simply grant very broad authority.

In most cases, if a conflict arises between the agreement and state default LLC rules, the former will control. There are some exceptions in which the entity cannot change a state rule through its documentation.

Statement of Authority

Some (but not all) states allow LLCs to file a statement of authority with the Secretary of State. This is a written document in the state's public records that lists who has power to bind the business, along with the scope of that power. Managers must abide by any restrictions set forth, or they could be subject to personal financial liability for their actions.

State law, operating agreements, and statements of authority are typically the main sources of a manager's rights and responsibilities. However, some entities may have other documents that contain restrictions or grants on their authority.

If you form an LLC, consider what powers and authorities you want the managers to have and include them in the operating agreement. If, however, you need to amend or modify the agreement in any way, you can do so. But ensure that you keep in mind state rules and regulations to avoid violating a manger's rights under the law.

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