Limited liability companies (LLCs) can be managed by either their members, or by a board of managers (board of managers is the term used in Indiana – some states differ slightly). This is something that needs to be specified in the articles of organization for the LLC, and although the articles can obviously be amended at any time to change how the LLC is managed, it is an important decision nevertheless.
A member managed LLC is exactly what it sounds like – an LLC with its daily business managed by its members. This is obviously not a big deal if you have one, or even two members. Problems arise when an LLC has multiple members. Typically, except as otherwise spelled out in a written operating agreement, all of the members will have the authority to act on behalf of the LLC (sign checks, execute agreements…etc). This is not an ideal situation.
A manager-managed LLC, on the other hand, has its daily business matters managed by a board of managers. This would be analogous to a board of directors or even officers in a corporation. Members elect the board of managers, and become much more passive in the operation of the LLC. Members, of course, can also serve as managers. The flip side of this, and another advantage to having a manager managed LLC is that you can elect managers that are not members.
Any LLC, regardless of whether it is member managed or manager managed should clearly define the authority of its members and managers in a written operating agreement executed by all the members and the LLC. Check back sometime soon for a follow up post about how this should be handled and what things need to be considered.
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