An LLC’s operating agreement is a document that sets out the rules regarding how the business is to be conducted. Generally all the members will agree to the operating agreement prior to the start of the business. The purpose of this document is to anticipate possible conflicts and situations and to have a procedure in place to address those issues. The operating agreement can also be used to establish whether the business will have officers.
A member-managed LLC is one where each member is permitted to make decisions for the business. Each member has equal rights in managing the business and signing contracts that bind the organization. This organization is appropriate when all of the members have a strong financial background, understand the business model, and are good at interacting with employees and outside parties.
A manager-managed LLC limits who can act on the company’s behalf to a few specific individuals. This organization is generally used when some of the members wish to be passive investors. The chosen representatives who get to act on the company’s behalf are likely to be granted officer positions and have the corresponding rights and responsibilities of those offices. The operating agreement should have clear rules and standards for the managers to follow while carrying out their duties.
Common Officer Positions
The most well-known of officer positions and the most powerful in most organizations is the chief executive officer. The CEO is responsible for all of the LLC’s day-to-day activities and contracts. The CEO will generally report to the members of the LLC. A chief operating officer is subordinate to the CEO and will focus more on the activities regarding the production and sale of the LLC’s product or service. The chief financial officer is generally in charge of maintaining the LLC’s financial records and making financing decisions. If the LLC is a tech company, it may also have a chief technical officer to make decisions regarding technological initiatives to pursue.