An owner of an LLC is called a “member”. A member’s percentage of ownership interest in the company is called
that member’s “membership interest”.
If an LLC is “member-managed”, management of the affairs of the company is vested in the members. Each
member can sign documents on behalf of, and bind, the company. Each member participates in the company’s day-
to-day operations and decision-making. The members vote on decisions in proportion to their respective
membership interests. The company’s operating agreement can specify what percentage is needed for certain
actions, from a simple majority to a unanimous vote of the membership interests.
By contrast, if an LLC is “manager-managed”, management of the affairs of the company is primarily vested in one
or more elected managers. A manager can be a member or a non-member of the company. While the managers carry
out most of the functions of the company, certain key decisions typically still require a vote of the members.
To give an illustration, let’s say three individuals form an LLC to own and rent an investment property. One of them
has property management experience and will be the boots-on-the-ground, while the other two are just passive
investors. In this case, manager-management, with that first member serving as the manager, is appropriate. That
first member can replace the roof or lease to a new tenant without conferring with the other two. Big decisions, such
as mortgaging or selling the property, would still require a vote of the members.
If you would like guidance on how to set up the management of your new LLC, or perhaps change the management
structure of your existing LLC, we would be happy to help.