Jake Lawson here. One question I get constantly from entrepreneurs is: “Do I need an LLC manager, and what exactly do they do?” It’s a fair question because LLC management can seem confusing at first. After helping over 1,200 business owners structure their LLCs properly, I can tell you that understanding managers vs. members is crucial for getting your business setup right. Let me break it all down in plain English.
The Bottom Line Up Front
An LLC Manager is the person (or entity) who runs the day-to-day operations and has authority to bind the LLC in legal agreements. Think of them as the “person in charge” who can sign contracts, make business decisions, and represent the LLC in dealings with customers, vendors, and banks.
Here’s the key distinction: managers run the business, members own the business. Sometimes they’re the same person, sometimes they’re not.
LLC Manager vs. LLC Member: The Essential Difference
This confusion trips up a lot of people, so let me make it crystal clear:
LLC Member (The Owner)
- Owns a percentage of the LLC
- Receives profit distributions based on ownership
- Has voting rights on major company decisions
- May or may not be involved in daily operations
LLC Manager (The Person in Charge)
- Runs day-to-day operations
- Signs contracts on behalf of the LLC
- Makes business decisions
- May or may not own part of the company
The overlap: In small businesses, the owner and manager are often the same person. But they don’t have to be.
The Two Types of LLC Management Structures
Member-Managed LLC (Most Common)
- All owners participate in running the business
- Every member can sign contracts and make decisions
- No separate management layer
- Simpler structure with fewer formalities
Example: You and your business partner both own 50% and both work in the business daily. You’re both members and both have management authority.
Manager-Managed LLC (Less Common)
- Designated managers run the business
- Members may be passive investors
- Clear separation between ownership and management
- More formal structure with defined roles
Example: You own 70% and run operations (you’re a managing member), while your silent investor partner owns 30% but has no management role (they’re just a member).
The Three Types of LLC Managers
1. Internal Manager (Managing Member)
Who they are: An LLC member who also manages the business
Common scenario: Small business owner who owns and operates their LLC
Authority: Full management power plus ownership rights
Title: Often called “Managing Member”
2. External Manager
Who they are: Someone hired to manage the LLC who doesn’t own it
Common scenario: Professional manager brought in to run operations
Authority: Management power but no ownership rights
Title: “Manager” or specific title like “General Manager”
3. Company Manager
Who they are: Another business entity (LLC, corporation) that manages the LLC
Common scenario: Holding company structure or professional management firms
Authority: Full management power through designated representatives
Title: The managing entity’s name
What LLC Managers Actually Do
Based on my experience with hundreds of LLCs, here’s what managers typically handle:
Daily Operations
- Make business decisions within their authority
- Oversee employees and contractors
- Handle customer relationships and vendor negotiations
- Manage cash flow and banking relationships
Legal and Financial Authority
- Sign contracts on behalf of the LLC
- Open bank accounts and access business credit
- File required documents with government agencies
- Represent the LLC in business dealings
Strategic Planning
- Set business direction and operational policies
- Make investment decisions within established limits
- Plan for growth and expansion
- Report to members on business performance
Compliance and Administration
- Ensure regulatory compliance
- Maintain corporate records
- File annual reports and tax documents
- Handle business licenses and permits
How to Choose an LLC Manager
The Selection Process
Who decides: The LLC members vote to select managers
Documentation: The choice gets recorded in the operating agreement
State filings: Some states require manager names on Articles of Organization
Key Considerations When Choosing
- Business experience and relevant skills
- Time availability for management duties
- Trustworthiness with business assets and decisions
- Compensation expectations and alignment with business goals
Common Selection Scenarios
Single-Member LLC: You’re typically both the sole member and sole manager (managing member)
Partnership LLC: Partners might all be managing members, or designate one as the primary manager
Investor LLC: Active partner becomes manager, passive investors remain members only
Professional Management: Hire experienced manager while retaining ownership
Manager Authority and Limitations
What Managers Can Do (Typically)
- Enter contracts up to specified dollar amounts
- Hire and fire employees within budget parameters
- Make operational decisions that don’t require member approval
- Access business banking and financial accounts
What Requires Member Approval (Usually)
- Major contracts above specified thresholds
- Borrowing money or taking on significant debt
- Selling business assets or real estate
- Changing business direction or dissolving the LLC
Pro tip: Your operating agreement should clearly define the manager’s authority limits to avoid conflicts and legal issues.
Removing or Changing LLC Managers
The Removal Process
Who can remove: LLC members vote to remove managers
Documentation: Record the change in your operating agreement
Notice requirements: Follow any notice provisions in your operating agreement
State filings: Update annual reports or file amendments if required
Common Reasons for Manager Changes
- Poor performance or business results
- Breach of fiduciary duty or trust
- Personal conflicts between managers and members
- Business pivot requiring different skills
Transition Considerations
- Authority transfer: Ensure smooth handoff of responsibilities
- Banking access: Update signature cards and account access
- Legal documents: Transfer signing authority for contracts and agreements
- Employee communication: Clearly communicate management changes
Member-Managed vs. Manager-Managed: Which Should You Choose?
Choose Member-Managed When:
- All owners are active in the business
- Simple ownership structure with aligned interests
- Small team that works well together
- You want maximum simplicity and minimal formalities
Choose Manager-Managed When:
- You have passive investors who don’t want operational involvement
- Professional management is needed for growth
- Complex ownership structure requires clear operational control
- Privacy is important (managers’ names may be less public than members’)
State-Specific Manager Requirements
States Requiring Manager Disclosure
Some states require manager information on formation documents:
- California: Manager names on Articles of Organization
- New York: Management structure disclosure required
- Texas: Manager information on Certificate of Formation
States with Internal Management Structures
Other states handle this through operating agreements:
- Delaware: No public manager disclosure required
- Wyoming: Management structure handled internally
- Nevada: Private management arrangements allowed
My recommendation: Regardless of state requirements, always document your management structure clearly in your operating agreement.
Manager Compensation and Fiduciary Duties
How Managers Get Paid
- Salary: Regular W-2 wages (requires payroll setup)
- Management fees: Payments for services rendered
- Profit distributions: Share of LLC profits (if they’re also members)
- Performance bonuses: Tied to business results
Fiduciary Duties Managers Owe
- Duty of loyalty: Act in the LLC’s best interests, not personal interests
- Duty of care: Make informed decisions and avoid negligence
- Duty of good faith: Act honestly and transparently
- Duty of disclosure: Inform members of conflicts of interest
Important: These duties are legally binding and can result in personal liability if breached.
Tax Implications of LLC Managers
For the LLC
- Manager compensation is typically deductible as a business expense
- Management structure doesn’t affect the LLC’s tax classification
- Profit distributions to managing members follow normal LLC taxation rules
For Individual Managers
- Salary payments are subject to income and payroll taxes
- Management fees are typically treated as self-employment income
- Profit distributions (if also a member) are subject to self-employment tax
Pro tip: Work with a CPA to structure manager compensation tax-efficiently.
Common LLC Manager Mistakes (And How to Avoid Them)
Mistake 1: Unclear Authority Limits
The problem: Operating agreement doesn’t specify what managers can decide independently
The solution: Define clear dollar limits and approval requirements for major decisions
Mistake 2: Mixing Manager and Member Roles
The problem: Confusion about when someone is acting as manager vs. member
The solution: Clearly document which hat you’re wearing for different decisions
Mistake 3: No Succession Planning
The problem: No plan for what happens if the manager leaves or becomes incapacitated
The solution: Include manager succession provisions in your operating agreement
Mistake 4: Inadequate Record Keeping
The problem: Failure to document management decisions and member approvals
The solution: Maintain meeting minutes and written consents for important decisions
Mistake 5: Ignoring Fiduciary Duties
The problem: Managers acting in self-interest rather than LLC’s best interests
The solution: Understand and take fiduciary duties seriously
Privacy Considerations for LLC Managers
Public Record Exposure
- Some states publish manager names in public databases
- Annual reports may require manager information updates
- Business licenses often require manager identification
Privacy Protection Strategies
- Use manager-managed structure (manager title doesn’t automatically indicate ownership)
- Professional registered agent to minimize public address exposure
- Corporate manager (another entity serves as manager)
- Privacy-friendly states with minimal disclosure requirements
Converting Between Management Structures
From Member-Managed to Manager-Managed
- Members vote to approve the change
- Amend operating agreement to reflect new structure
- Designate managers and define their authority
- Update state filings if required
- Notify banks and other business relationships
From Manager-Managed to Member-Managed
- Remove existing managers through member vote
- Amend operating agreement for member management
- Redistribute authority among members
- Update state filings and business accounts
- Communicate changes to employees and vendors
Advanced Manager Structures
Multiple Managers
- Co-managers with equal authority
- Hierarchical management with senior and junior managers
- Specialized managers for different business functions
- Committee management for complex decisions
Professional Management Companies
- Management LLCs that specialize in running other businesses
- Corporate managers for sophisticated structures
- Family office management for wealthy families’ LLCs
- Professional services for regulated industries
The Bottom Line: Do You Need an LLC Manager?
For most small businesses: Member-managed structure works best because it’s simple and you maintain control.
Consider manager-managed when:
- You have passive investors who shouldn’t have operational control
- Professional management would benefit your business
- Complex ownership requires clear operational authority
- Privacy concerns make member disclosure problematic
My general rule: Start simple with member-managed structure. You can always change to manager-managed later as your business grows and becomes more complex.
The key is understanding that management structure affects who can legally bind your LLC and make business decisions. Get this wrong, and you could face internal conflicts, legal problems, or operational confusion.
Document your management structure clearly in your operating agreement, communicate roles and authority limits to everyone involved, and update your structure as your business evolves.
Frequently Asked Questions
“Can I be both a member and a manager of my LLC?”
Absolutely. This is called a “managing member” and it’s the most common arrangement for small business LLCs. You own the business and run it too.
“How many managers can an LLC have?”
There’s typically no limit. You can have one manager, multiple co-managers, or even a hierarchy of managers with different responsibilities and authority levels.
“Can an LLC manager be held personally liable?”
Generally no for business debts, but managers can face personal liability for breaching fiduciary duties, personal guarantees they sign, or illegal actions taken on behalf of the LLC.
“What happens if our LLC manager quits suddenly?”
Depends on your operating agreement. Good operating agreements include succession provisions and emergency management procedures. Without these, members would need to vote on replacement management.
“Can a manager be compensated without being a member?”
Yes. External managers are typically paid salaries or management fees. They don’t need to own part of the LLC to receive compensation for their services.
“Do managers need to live in the same state as the LLC?”
Generally no. Most states don’t require managers to be state residents, though some business licenses or professional requirements might have residency requirements.
Need help structuring your LLC’s management for maximum effectiveness and protection? I’ve guided over 1,200 entrepreneurs through these decisions, and every business has unique considerations. The goal is creating a management structure that fits your operational needs, growth plans, and ownership dynamics. Get the framework right from the beginning, and everything else becomes much easier to manage.