Hi, are you a member of a multi-member LLC, wondering what the difference is between a member-managed LLC and a manager-managed LLC? That's a mouthful. I'm Katherine Taylor, the lawyer for business owners, and I'm going to explain the difference.

First, to start: a member of an LLC is an owner. I practice in Maryland, but in most states, the term used is “member” of an LLC. Those are the owners of the LLC. With a member-managed LLC, it's basically exactly as it sounds—the members manage the day-to-day operations of the business. That management can happen in a very informal way or a more formal way. Typically, for smaller businesses, it's more informal.

In a member-managed LLC with no other guardrails in place, each member can bind the LLC, enter into contracts, and make decisions. Sometimes, that's not what you want. So if you're running a member-managed LLC, you may want to consider having an operating agreement that states members cannot make major decisions without either a majority vote or a unanimous vote of the members.

So, what is a manager-managed LLC?

That's a situation where the members decide they want another person to take on the responsibility of running the day-to-day business. Many manager-managed LLCs actually appoint one of the members as the manager. In the operating agreement, the responsibilities and authority of that manager are laid out very clearly so that both the manager and the other members know exactly where that authority begins and ends.

Again, in this type of operating agreement, the members can decide that they don't want the manager to make major decisions on their own. Instead, major decisions may be subject to a vote and require either a majority or unanimous approval. All of this is laid out in the operating agreement and must be stated very clearly.

My name is Katherine Taylor, the lawyer for business owners. I have a lot of videos on LLCs and operating agreements, so please like this video on YouTube and subscribe to the channel—I've got more coming. Thank you.