Are you thinking about setting up an LLC, but is wondering which is better for your LLC, a manager vs member managed for your management style? Well, stay tuned because today, we're going to break it all down for you, everything you need to know to make the right choice for your LLC. Let's do this.
Today we're talking to you about the difference between member-managed and manager-managed LLCs. If you are an online business owner who is thinking about forming an LLC, or maybe you already have formed an LLC, then chances are you're a little mystified by the idea of forming a member-managed versus a manager-managed LLC.
You're not quite sure what the differences are. You're not quite sure if you made the right decision, and are really wondering whether the choice that you made is right for your online business. This could be you could be an online coach. You could be a course creator, an affiliate marketer. You could be selling ecommerce products. Or you could be a creator on YouTube, just like I am. Whatever it is that you might be doing, this is a big serious decision that you need to make when it comes time to form your LLC.
Why can't you figure this stuff out? Well, it's pretty simple really. It's because it's complicated. It's hard to understand, and for most people that aren't lawyers, they really just don't know where to start in terms of getting this information, other than spending hundreds or maybe thousands of dollars hiring a lawyer to help you. And, if you mess this step up then you run the risk of getting your corporate veil pierced, and there's a whole bunch of bad stuff that can happen if that were to happen. You put your personal assets at risk if you were to get sued, or if your business were to get sued, and it's just really something you don't want to ever deal with.
I want to talk to you about the difference between a member-managed LLC and a manager-managed LLC, and help you figure out which one might be better for you and your business structure for your online business, assuming that you formed or are thinking about forming an LLC for your online business. Before we get into the differences between a member-managed LLC on the one hand, and a manager-managed LLC on the other, I want to tell you that the choice you make when it comes to this decision is really going to depend in large part on the type of business you're running, how many members you have in the LLC, and a lot of other factors that are somewhat beyond the scope of this.
In a nutshell, here's the difference: A member-managed LLC is exactly what it sounds like. It is an LLC that is managed by the member. So, whether you have one member or 50 members, they're all going to have an equal say, an equal vote in the management of the LLC. What this means is that if you want to do anything with regards to your LLC, any types of decisions you want to make, whether it means switching into a new business area, or investing in some software, or buying some property, or assets for the business, or moving to a new business location, or anything like that, you have to have consensus with all of the members of your LLC.
If it's just you and you're a single member LLC, this isn't going to be such a hard thing because you just have a meeting with yourself. You decide that's what you want to do, and you go ahead and make the change. If you have two, three, four, five, 10 people that are all members of the same LLC, you have to get a consensus between everyone before many any major decisions related to the management of your LLC. On the other hand, a manager-managed LLC means that you have one person or entity that serves as the manager of your LLC, and they're the ones that are going to make all the decisions.
This is a really great option if you are forming an LLC where you might be working with somebody else whose going to be providing a lot of capital for the LLC, but you're the one that's going to be doing all the sweat equity and controlling the operations of the business. The other person might just want to give you some money and have you manage the business, and they might want to have a very passive role versus you're the one whose going to be taking that money, investing it, and building the business with existing systems that you might have from your prior experience, but maybe you just don't have the capital to build the business.
In that situation, you could serve as a member and the manager, and you could control all the day to day operations of the business. The other situation where a manager-managed LLC might make a lot of sense, maybe you're a solopreneur right now, but you intend to bring in a lot of other members for your LLC, in which case you want to still retain that control over the LLC, so you would want to be the manager. Or let's say for estate planning purposes, you may want to give away some of the interest in the LLC to your children, or to a spouse, or to someone else, and you still want to retain control.
In those situations, a manager-managed LLC is going to be the way to go. Here in North Carolina where I practice law, the default provision in the LLC Act is a manager-managed LLC. You can be a solopreneur, and you can be a manager-managed LLC, or you can be a member-managed LLC. It doesn't really matter if you're a solopreneur. Where it does matter is when you start to have partners and other people involved in the day to day operations of the LLC. If you're the one that wants to retain all of the control over how the LLC is managed on a day to day basis, then a manager-managed LLC may be the right way to go.
There are some other considerations that you need to be aware of when deciding between a member-managed and a manager-managed LLC, and some of them might be the fact if you're looking to from an LLC that's going to provide some level of anonymity to you or to the members of your LLC, then a manager-managed LLC may be the way to go. Again, that's somewhat beyond the scope of this video. Also, if you want some more credibility when you're dealing with other vendors or banks, or people that you might be purchasing assets from in the name of the LLC, then maybe a manager-managed LLC might be the way to go.
In addition, there's also liability considerations when it comes to choosing a member-managed LLC versus a manager-managed LLC. If run correctly, the manager-managed LLC may be more difficult to pierce that corporate veil than a member-managed LLC. If you'd like to learn more about LLCs and the different mistakes people make when forming their LLCs, here's another video I've done right here. Have a great day, folks. We'll see you soon.