Member-Managed vs. Manager-Managed LLC

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Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.

Reviewed by: Sarah Ruddle

For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.

Updated on May 30, 2025

One of the benefits of an LLC is the flexibility of choosing your management structure. For example, your LLC can be member-managed, meaning that the LLC owners, called members, handle all the management duties. Or you can choose a manager-managed structure, which hires employees to manage the LLC.

This guide provides all the information you need about being a member-managed or manager-managed LLC to choose the best option for your business.

What LLC Managers Do

LLC managers, whether they are members or not, assume various roles and handle different duties. For example, you can have a Chief Executive Officer (CEO), a Chief Financial Officer (CFO), and a Chief Marketing Officer (CMO).

The great thing about an LLC is that you can assign any management role and even name them anything you choose.

LLC managers, however, have specific overriding responsibilities to the company, whether they are members or not. They make critical decisions and develop strategies to move the business forward. They can also do the following on behalf of the LLC:

Sign legal documents
Enter into contracts
Hire employees
Manage bank accounts
Get financing for the company

Because these management decisions and duties are critical to the business, choosing your management structure and managers is of the utmost importance.

Member-Managed LLCs

In a member-managed LLC, all members are involved in the day-to-day operations and management. Most LLCs are small businesses that cannot afford a management team and are thus member-managed.

Many LLC owners prefer the member-managed structure because it keeps them in control of all decision-making. Unlike a corporation, where managers must answer to a board of directors, member managers answer to no one. They have the authority over everything done for and within the business.

In some states, you have to specify whether your LLC will be member-managed or manager-managed in the articles of organization filed to form the LLC. But in most states, LLCs are considered member-managed by default.

Pros and Cons

Pros

Direct Control: All members have a say in the day-to-day operations, providing direct control over the business decisions.
Simplicity: Often simpler to set up and manage since all members are involved in management.
Transparency: Decisions are typically made collectively, promoting transparency among members.
Cost-Effective: Potentially lower costs as there’s no need to pay for external managers.

Cons

Time-Consuming: Members must be involved in all aspects of management, which can be time-consuming.
Conflicts: Potential for disagreements and conflicts among members regarding management decisions.
Limited Expertise: Members may lack the necessary management expertise or experience.
Scalability Issues: May be less scalable as the business grows, requiring more structured management.

Manager-Managed LLCs

In a manager-managed LLC, some members can still be managers alongside non-member managers. In such cases, the members who are not managers are passive investors in the company. They do not play a role in day-to-day operations.

Generally, a manager-managed structure is chosen when some members are passive investors or the LLC has too many members to share all the management duties.

Sometimes, however, members need to gain management skills to run the company, so hiring professional managers makes better sense for the business.

Pros and Cons

Pros

Professional Management: Allows hiring of professional managers with specific expertise and experience.
Efficiency: More efficient decision-making process as not all members need to be involved in daily operations.
Reduced Conflict: Minimizes the potential for conflicts among members regarding management decisions.
Scalability: Easier to scale the business with a clear management structure in place.

Cons

Less Control for Members: Members have less direct control over the business operations.
Cost: Hiring professional managers can increase operational costs.
Complexity: More complex structure which can require more detailed operating agreements and oversight.
Potential Disconnect: Potential for a disconnect between managers and members if communication is not effective.

The Operating Agreement

Most states do not require an operating agreement, but having one is essential. The operating agreement will define your management structure, the ownership percentages of members, and how profits and losses are distributed.

Those are the key elements of the operating agreement, but it should also include the following:

Each member’s rights and responsibilities
Voting rights of each member
Rules for meetings and voting
What happens when a member sells their interest, becomes disabled, or dies

You can find operating agreement templates online, but it’s best to have them drawn up or reviewed by an attorney. The language of an operating agreement is crucial and can often help determine how member disputes will be resolved.

Which Management Structure Is Right for Your Business?

The beauty of an LLC is that you have a choice!

If your LLC has members who want to be passive investors and reap the financial benefits of ownership, you should go with a manager-managed structure. However, remember that some members can still be managers under this structure.

If all members want to be involved and maintain control, then a member-manager structure is the better choice. One key consideration is that if you hire non-member managers, you’ll have to pay them a salary, which can be a hefty chunk of your operating budget.

Do LLCs Need a Board of Directors?

In a corporation, a board of directors is a decision-making group elected by the corporation’s shareholders. Usually, this group consists of internal, executive-level managers and external individuals with relevant backgrounds and expertise.

Internal board members are not typically compensated for their participation, while external members are. Board members are responsible for making decisions about corporate strategy, executive compensation, and the hiring and firing of executive leaders.

If an LLC chooses to form a board of directors, its responsibilities should be clearly outlined in the LLC’s operating agreement, along with board bylaws. These bylaws detail how board members will be elected, how many there will be, and when and where meetings will occur.

Advisory Boards

Another alternative to a board of directors is an advisory board. Elected by the members of an LLC, an advisory board comprises external individuals who provide non-binding, strategic advice to the company’s managers. The members of an advisory board are typically established industry professionals with extensive experience.

Although the members of an advisory board are usually compensated for their role, it tends to be much less expensive than a board of directors. For example, it’s common for an LLC advisory board to be compensated with a nominal yearly stipend or a small ownership share.

Is My LLC Required to Have a CEO?

Unlike a corporation, an LLC is not legally required to have an appointed CEO. However, an LLC may choose to give the title of CEO or president to one of its owners, also known as members.

If you’re the sole member of your LLC, you’re free to choose any title you wish. Some LLC owners prefer to be the principal or managing partner. It’s best to choose a title that fits the image of your business, as you’ll likely use it when signing official documents and contracts.

When it comes to LLCs with multiple members, it may be wise to appoint one member as CEO and make them responsible for all managerial decisions. This might be a practical choice for LLCs with members who are silent partners uninvolved in day-to-day operations.

All states allow LLCs to designate one of its members as a CEO or president, as long as the role is clearly defined within your operating agreement. Your operating agreement should also clearly outline the roles of any other LLC members.