One of the first decisions you make when you start a business is your legal structure. More than 70% of business owners choose to be sole proprietors.
They miss out on the legal and liability protection that a limited liability company offers. LLCs create a separate entity. In a sole proprietorship, the owner and the businesses are one and the same.
Should a business get sued or have legal issues, the business owner of the sole proprietorship is personally responsible. In an LLC, the business is responsible if it has the right LLC management structure.
There are LLC management structures to know about before you sign up as an LLC.
Read on to learn more about the management structures of LLCs and which one is right for your business.
Member-Managed LLC
LLCs can have a single member or multiple members. They’re seen as shareholders in the business.
In a member-managed LLC, each of the members has responsibilities for running the entity. Decisions get made by the members.
If you have a single-member LLC, the member is responsible for all aspects of the business.
In this LLC management structure, it could be difficult to make decisions quickly. There could be a lot of people involved in decision-making or you have to wait until the next member meeting to take action.
In a small business, that could be paralyzing and prevent growth. This structure works if there are few members, each member has management experience, and the members want to actively participate in the business.
Manager-Managed LLC
In a manager-managed LLC, one or managers get appointed by the LLC’s members to run the business. The manager may be a member of the LLC, but it’s not a requirement.
Members of the LLC sit on the sidelines while the managers do the work and make decisions.
This management structure is appropriate if your business has passive investors as shareholders. This lets them invest in the business without having to operate it.
For instance, if you have a real estate investment company with several investors, the members can appoint an LLC property management company to run the day-to-day operations of the property.
That allows the investors to receive income without being a landlord.
Another situation where this is a good LLC management structure to use is when there are a lot of members in a business.
The LLC members have to agree to turn the reins over to a manager they trust. That prevents the business from getting stuck in decision-making mode.
The Best LLC Management Structure for Your Business
What’s the best LLC management structure for your business? It depends on your business. You could have a member-managed or manager-managed LLC.
The difference between the LLC member vs. manager is the level of responsibility a person has in the LLC. The member is an investor or partner in the business.
A manager is assigned to run the operations of a business by the members.
Be sure to visit the Business section of this site for more tips to run your business.
