Jake Lawson here. I’ve seen too many LLC owners get tangled up in management structure decisions that don’t really matter for their situation. Before we dive into manager-managed LLCs, let me give you the bottom line: most small businesses should stick with member-managed structures. But there are legitimate cases where manager-managed makes perfect sense—let me explain when and why.
LLC Management Structures: The Two-Minute Overview
When you form an LLC, you’re making two fundamental decisions about control:
- Who runs the day-to-day operations?
- Who has authority to sign contracts and bind the company?
You’ve got exactly two choices:
Member-Managed LLC: All owners (called “members”) share management duties and signing authority. Think of it as everyone having keys to the car.
Manager-Managed LLC: Designated managers run the business while members take a backseat. Like hiring a professional driver while you sit in the passenger seat.
After helping 1,200+ businesses with their LLC formations, I can tell you that about 85% should go with member-managed structures. But that other 15%? Manager-managed can be a game-changer.
What Actually Happens in a Manager-Managed LLC
Here’s how the power structure works:
Managers Have:
- Day-to-day operational control
- Authority to sign contracts and agreements
- Responsibility for business decisions and execution
- Legal power to bind the LLC in most situations
Members Retain:
- Ultimate ownership control
- Power to hire and fire managers
- Authority to change the management structure
- Rights to profits and distributions as outlined in the operating agreement
Manager Reality Check: Don’t let the “Manager” title fool you—Members still hold the keys to the kingdom. They can fire managers, replace them, or scrap the whole manager structure whenever they want. Think of managers like hired CEOs while members are the board of directors. I’ve seen power-tripping managers learn this lesson the hard way when members unanimously voted them out. The ownership always wins.
Think of it this way: Members are like a board of directors, and managers are like the CEO. The CEO runs the show, but the board can replace them anytime.
Who Can Serve as an LLC Manager?
You’ve got three main options, and each serves different purposes:
Internal Managers (Member as Manager)
This is when one of the LLC owners also serves as the manager. Their official title becomes “Managing Member.”
When this works: Multi-member LLCs where one person wants operational control while others prefer investor roles.
Real example: Three friends start a restaurant LLC. Sarah puts up most of the money but wants to stay hands-off. Mike and Jessica want to run the business. They choose manager-managed with Mike and Jessica as managers.
External Managers (Non-Owner Managers)
Professional managers hired to run the business without owning it.
When this works: When you want professional management but none of the owners have the time or expertise.
Real example: Two doctors form an LLC for their medical practice but hire an experienced practice administrator as the manager to handle day-to-day operations.
Company Managers (Entity as Manager)
Another business entity (like another LLC or corporation) serves as the manager.
When this works: Complex business structures or when you want an extra layer of separation between ownership and management.
Real example: A holding company LLC manages multiple subsidiary LLCs, each focused on different business lines.
When Manager-Managed Actually Makes Sense
Based on my experience, here are the situations where I recommend manager-managed structures:
Passive Investors Present
When some owners want to invest money but not time. Classic scenario: one person has business expertise, others have capital but no desire for daily involvement.
Professional Management Needed
Your business requires specialized management skills that owners don’t possess. Think medical practices, complex manufacturing, or businesses requiring specific industry expertise.
Privacy Considerations
In some states, manager names appear in public records instead of member names. If you’re listed as a manager (not a member), people can’t definitively know you own the company.
Privacy note: This benefit varies by state and isn’t foolproof. Don’t choose manager-managed solely for privacy without understanding your state’s specific disclosure requirements.
Future Investment Planning
If you plan to bring in outside investors who want professional management oversight, starting with a manager-managed structure can make that transition smoother.
Complex Multi-Member Situations
When you have many members with varying levels of involvement, having designated managers prevents decision-making paralysis.
The M-Word Confusion: Member, Manager, Managing Member, Member-Managed—it’s like someone played Scrabble with your LLC structure. After explaining this distinction to 500+ confused entrepreneurs, I’ve learned to keep it simple. Don’t worry, I’ll decode this alphabet soup without the legal jargon. By the time we’re done, you’ll understand exactly who runs what in your LLC. No law degree required, just common sense.
When to Stick with Member-Managed
For most small businesses, member-managed is the way to go:
Single-member LLCs: Unless you’re hiring professional management, there’s no benefit to manager-managed structures.
Small partnerships: When all owners want to stay actively involved, member-managed keeps things simple.
Family businesses: Usually better to maintain shared control among family members.
Simple operations: If your business doesn’t require specialized management expertise, why complicate things?
How to Set Up Manager-Managed Structure
During LLC Formation
Some states ask about management structure on the Articles of Organization. If yours does, you’ll select “manager-managed” during filing.
States that typically ask: California, Delaware, Nevada, and several others.
States that don’t ask: Most states leave this to your operating agreement.
In Your Operating Agreement
This is where the real decisions happen, regardless of what your Articles say. Your operating agreement should specify:
- Who the initial managers are
- How managers are appointed and removed
- What authority managers have
- How management decisions are made
- How members can override manager decisions
Key Sections to Include
Manager Powers: Be specific about what managers can and cannot do. Can they sign contracts over $10,000? Hire employees? Take on debt?
Member Oversight: Define how members maintain control. Monthly reports? Quarterly meetings? Annual reviews?
Change Procedures: How do you add or remove managers? What voting threshold is required?
Common Mistakes I’ve Seen
Mistake #1: Choosing Manager-Managed Without Clear Reasons
Don’t pick it just because it sounds more “professional.” It adds complexity without benefits for most small LLCs.
Mistake #2: Undefined Manager Authority
Vague operating agreements create conflicts. Be specific about what managers can do independently versus what requires member approval.
Mistake #3: No Member Oversight Mechanisms
Some LLCs give managers too much autonomy without built-in checkpoints. Members should maintain meaningful oversight rights.
Mistake #4: Ignoring State-Specific Requirements
Some states have specific rules about manager-managed LLCs. Make sure your structure complies with local laws.
Privacy Benefits: The Reality Check
Many people choose manager-managed LLCs thinking they’ll get better privacy protection. Here’s the truth:
Limited benefit: In some states, only manager names appear in public records, potentially hiding member identities.
State variations: Privacy benefits vary significantly by state. Some states still require member disclosure.
Not a magic bullet: If you’re signing contracts or conducting business, your involvement will be apparent regardless of your official title.
Better privacy strategies: Wyoming and Delaware LLCs with professional registered agents often provide better privacy protection than management structure choices.
Changing Management Structures
Good news: You’re not locked into your initial choice. Here’s how to switch:
From Member-Managed to Manager-Managed
- Member vote: Get agreement from existing members (check your operating agreement for required voting threshold)
- Amend operating agreement: Update the document to reflect manager-managed structure
- Update state records: If your state requires it, file amendments to Articles of Organization
- Notify relevant parties: Update bank signature cards, contracts, and other business documents
From Manager-Managed to Member-Managed
Essentially the reverse process. Usually easier since you’re simplifying rather than adding complexity.
Tax Implications (Spoiler: There Are None)
Here’s something that confuses many people: your LLC management structure has zero impact on federal taxes.
Single-member LLCs: Still disregarded entities regardless of management structure.
Multi-member LLCs: Still partnerships for tax purposes whether member-managed or manager-managed.
Tax elections: You can still elect S-corp or C-corp tax treatment with either management structure.
Banking and Contracts
Account opening: Banks care about who has signature authority, not whether you’re member-managed or manager-managed. Your operating agreement determines who can sign.
Contract authority: Third parties need to know who can legally bind your LLC. This comes from your operating agreement and any resolutions, not your management structure choice.
Documentation: Keep clear records of who has authority to act on behalf of the LLC, especially in manager-managed structures.
Frequently Asked Questions
Q: Can a manager also be a member? A: Absolutely. Many manager-managed LLCs have “managing members” who are both owners and managers.
Q: How many managers can an LLC have? A: As many as you want, though too many can create decision-making problems. Most have 1-3 managers.
Q: Can members overrule manager decisions? A: Depends on your operating agreement. You can structure it so members retain veto power over major decisions.
Q: Do managers get paid differently than members? A: Manager compensation is separate from member distributions. Managers can receive salaries, bonuses, or management fees as outlined in your operating agreement.
Q: What happens if a manager leaves? A: Your operating agreement should specify succession procedures. Members typically have the power to appoint replacement managers.
My Professional Recommendation
After 15+ years in this business, here’s my advice:
Start simple: Most new LLCs should begin as member-managed. You can always change later if circumstances warrant it.
Choose manager-managed when:
- You have passive investors
- You need professional management expertise
- You have complex multi-member situations
- You’re planning for future investment rounds
Avoid manager-managed if:
- You’re a single-member LLC without hired management
- All members want active involvement
- You’re trying to solve problems that don’t exist
Get professional help: If you’re considering manager-managed structure, invest in a solid operating agreement. The $1,000-2,000 you spend upfront can save tens of thousands in disputes later.
Ready to Form Your LLC?
Whether you choose member-managed or manager-managed, the most important thing is getting your LLC formed correctly from the start. After testing every major formation service, I consistently recommend Northwest Registered Agent for their accuracy, transparent pricing, and quality service.
They’ll handle your Articles of Organization properly and won’t try to confuse you with unnecessary add-ons or complicated management structure decisions you’re not ready to make.
Related Article: Compare member-managed vs. manager-managed structures
About Jake Lawson: LLC formation strategist with 15+ years helping entrepreneurs navigate business formation decisions. Independent advice backed by experience with 1,200+ successful LLC formations. No hidden agendas—just practical guidance for business owners.
Disclaimer: This article provides general information only. LLC management structures involve legal considerations that vary by state and situation. Consult with a qualified attorney for advice specific to your circumstances.