LLCs are but one of a number of forms of organization in which one or more persons can conduct a business. The LLC is owned by the Members who can either (i) manage the business of the LLC themselves, in which case the LLC is a “Member-managed LLC”, or (ii) elect a Manager or Managers to manage the business of the LLC, in which case the LLC is a “Manager-managed LLC.” One of most important differences between a Member-managed LLC and a Manager-managed LLC concerns the authority of the Members to bind the LLC to LLC obligations:
(a) In a Member-managed LLC, each Member has the power to bind the LLC.
(b) In a Manager-managed LLC, no Member has the power to bind the LLC (just as no shareholder of a corporation can bind the corporation); only a Manager or authorized officer of the LLC can take binding actions.
Management duties include decisions about key policies and LLC transactions and establishment of guidelines within which the business of the LLC will be conducted. The Managers can hire officers and employees to perform the LLC’s day-to-day business.
BASIC STRUCTURE OF AN LLC
The following is a brief description of the roles of the major players in an LLC — the Members and the Managers. Although the following is written as if Members and Managers are separate persons, the same individuals could serve in both capacities.
Members
The Members own the LLC and provide the capital with which it commences business. In a Member-managed LLC, Members by definition manage the business of the LLC. In a Manager-managed LLC, Members as a group often do not take an active role in running the business. Normally one or two Members will be intimately involved in day-to-day operations of the LLC, and other Members will be passive investors. Beyond electing the Managers and voting on certain key events in the LLC’s life, the Members of a Manager-managed LLC entrust management of the LLC to the Managers (much like the shareholders of a corporation entrust management of the corporation to the directors and officers of the corporation).
Managers
Managers are elected by the Members to run the business and affairs of the LLC and exercise the LLC’s powers. Managers may either perform these responsibilities themselves or these responsibilities can be performed by officers and employees under the direction of the Managers.
Officers
Like a corporation, the LLC Members and Managers can appoint officers to conduct the day-to-day operation of the LLC’s business. An LLC may wish to appoint one or more persons to act as its General Manager or President, Chief Financial Officer, and Secretary, although the Managers may also elect to perform the same duties without using those titles. More than one of these offices can be held by the same individual, and an LLC may have additional officers as well. These additional officers are either appointed by the General Manager or another officer if such officer has been delegated authority to make such appointments.
MEMBER VOTES; MANAGER ACTIONS
Member Votes
Certain fundamental changes in the life of an LLC, such as a merger or liquidation, require a vote by the Members. The Act specifies the minimum vote required to effect these actions, although the Operating Agreement may modify the requirement. These fundamental changes include the following:
- Amendment of the Articles of Organization.
- Amendment of the Operating Agreement;
- Merger or consolidation of the LLC with or into another entity;
- Winding up and dissolution of the LLC.
Manager Action
Matters of general operating policy should be considered and authorized by the Managers. Such matters may include staffing and compensation decisions, appointment of officers, establishment of bank accounts, lending, borrowing, consideration of and action on major agreements, etc.
Although there is no statutory requirement with respect to how frequently the Managers should act, it is advisable that the Managers meet at least quarterly. In addition, a specially convened meeting of the Managers may be called if action is required before the next regular meeting of the Managers. Action by the Managers may also be taken by the unanimous written consent of the Managers. Manager meetings can be held either in person or by telephone conference so long as all Managers in attendance can hear each other simultaneously.