Chapter 4: Startup Essentials
LLC’s can choose between two management structures: Member Managed or Manager Managed. The point of this distinction is to designate who will have operational control of the LLC. In a member managed LLC structure, the operational control of the company falls to the partners based on their percentage ownership interest. All members will vote on decisions regarding company operations, and the company will follow the will of the majority percentage of the shareholders. This allows those partners with larger percentage interests to hold a proportionally larger say in operational decisions, while also giving a voice to smaller partners who may have limited percentage interests. This is the generally more common management structure of most LLC’s.
In a manager managed LLC, the partners have the opportunity to designate a party as having operational control of the company. This can be one of the shareholders, a hired CEO with no equity percentage, or a completely unrelated third party. In a manager managed LLC structure, only the designated “Manager” has the ability to make decisions. All owners that are not the designated manager are generally considered “silent partners”, as their shares do not carry any voting power for company decisions. A manager managed LLC could be the right call if you have investors or partners with no interest in managing the company, or if you intend to hire a CEO as an employee with no equity, but still want to give them autonomous control of the company.