When forming a limited liability company (LLC) in Florida, one of the critical decisions you’ll need to make is whether an LLC member vs. LLC manager will manage it. Understanding the distinctions between these two management structures is crucial for business owners.
Members, managers, or a combination of both can manage an LLC. Here, we will explore the differences between an LLC member vs. manager and between member-managed and manager-managed LLCs and offer guidance on choosing the proper management structure for your business. Contact us today to speak to a Florida business lawyer about your LLC!
What Is an LLC Member?
The members of an LLC are the owners of the LLC. They contribute capital to the company through money, services, or physical assets such as equipment or office space. In Florida, there is no minimum ownership requirement; a member can own between 1% and 100% of the company.
It is important to note that Florida law assumes that an LLC is member-managed by default, and the relevant rules and tax implications will apply unless an operating agreement or articles of organization specify otherwise.
What Is an LLC Manager?
An LLC manager is an individual, group of individuals, or entity appointed by the members to oversee and manage the company’s daily operations and decisions. They may be an LLC member or an outside third party. Nonmember managers are considered employees.
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What Is the Difference Between Member-Managed and Manager-Managed LLCs?
Generally, the difference between a member-managed LLC vs. manager-managed LLC is that in the former, all members can bind the LLC to contracts and participate in the daily operations and decision-making. Decisions such as mergers and acquisitions, entering into loan agreements, and liquidating the company will typically require majority approval.
Conversely, in a manager-managed LLC, the members appoint one or several managers to run the company. The authority to enter into binding contracts, run the daily operations of the company, and make business decisions is exclusively reserved for the elected manager or managers.
It is essential to determine who will be in charge of managing your LLC before starting the operation of the business so you can ensure the appropriate rules apply. An experienced Florida business attorney can help you determine the correct management structure for your business and guide you through putting it in place.
Agency is a significant difference between member-managed and manager-managed LLCs. In Florida, each member in a member-managed LLC is an agent of the LLC for the purpose of its activities and affairs. Any act of a member carried on in the ordinary course of the LLC’s activities and affairs binds the LLC, except in limited circumstances. So, each member, regardless of their percentage of ownership, has equal authority to bind the LLC.
For a manager-managed LLC, only the managers elected by the members have the power and authority to bind the LLC. With this structure, members are restricted from entering into binding contracts without the consent of the manager or managers.
In a member-managed LLC in Florida, each member has the right to vote concerning the LLC’s activities and affairs. A majority vote is required to undertake any action, with each member possessing a vote equal to their percentage or other interest in the profits of the LLC.
In a manager-managed LLC, each manager has equal rights with respect to management of the LLC’s activities and affairs. If there are multiple managers, the majority decides, with member consent only required for matters outside the ordinary scope.
In Florida, each member in a member-managed LLC owes fiduciary duties of loyalty and care to the company and members of the company. In a manager-managed LLC, this fiduciary duty is owed by the managers. This means that in a member-managed LLC, members may be personally liable in the case of a member’s failure to uphold their fiduciary duties. In the case of a manager-managed LLC, the manager or managers may be personally liable for a breach of fiduciary duties.
Should My LLC Be Member-Managed or Manager-Managed?
There are several factors you should consider when determining the management structure of your LLC, including:
- The size and complexity of the company,
- The number of owners,
- The type of company,
- Liability concerns, and
- Whether there are passive owners.
For example, a member-managed LLC is a less complicated structure where all the members have a say and could be a good choice for small businesses. On the other hand, a manager-managed LLC may be a better choice for a large LLC with passive investors such as for a large family-owned business with children incorporated as members. The choice between the two management structures is often complicated and requires the advice of a knowledgeable lawyer.
Contact an Attorney Today
Choosing between a member-managed and manager-managed LLC is a significant decision that should align with your business’s objectives, long-term goals, and liability concerns. Understanding the key differences and carefully considering your options will help you make an informed decision that supports the success and sustainability of your company. BrewerLong helps small and medium-sized businesses in Florida navigate the complexities of business law. Our experienced lawyers are ready to help your business succeed throughout its lifetime, including choosing its management structure at its inception. Contact us today for your business management needs.
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