Managing an LLC involves more than just being a member. One knows that an LLC is a simplified tax formation of a Corporation. This means that as an LLC member, you have some liability protection and less burden in terms of tax regulations. However, understanding how to form your LLC may require a quick explanation of LLC management.
How Do You Understand the Difference Between a Member-Managed LLC and a Manager-Managed LLC?
This is a question that comes up often for our Incfile customers. The first thing to understand is that the LLC is informal in nature by default and does not have stuffy titles and designations associated with corporations. The owners of an LLC are referred to as "members." In most cases, the LLC is managed by all members of the company and this is known as a member-managed LLC. The member managed structure represents 99.9% of all the LLCs we file at Incfile. On the contrary, the alternative to the member-managed LLC is the manager managed LLC. In this type of LLC, one person or more are designated as managers while the remaining members are essentially silent partners or passive investors. This scenario is common in restaurants, clubs and or real estate developments. We cover more information on member-managed LLCs and manager-managed LLCs in the sections below.
An LLC is Member Managed
As previously mentioned, the LLC does not have the formal and often stuffy title designations that filing as a Corporation requires such as a board of directors and officers. An LLC managing member is not required to be part of or designate a board of directors, but rather is likely more directly involved in managing operations on a daily basis. As a member, you are required to file taxes as an adjunct to your personal income. However, it is possible to designate an LLC as a Corporate entity to treat it the same for tax purposes while still avoiding the cumbersome titles and management designations. Also, many LLCs are managed by one member — the founder, or solopreneur.
LLC Management Is A Team Effort
Often, LLCs have multiple members, though a single-member LLC is possible and often the case. In the case of a single member LLC, the member is treated as a sole proprietorship when filing business taxes. As a multiple member LLC, the members act as a partnership. Simply put, LLC management is a team effort. However, in some LLCs, members may wish to designate a manager. This acts similar to having silent partners or passive investors. While 99.9 percent of LLCs are member managed, there are a small number of manager-managed LLCs. Ultimately, if an LLC is not manager managed, then all members are actively involved meaning that each equally contributes using their unique talents for the good of all.
Members Do Best To Distribute Responsibility
While designating a manager and stepping back from the operations of an LLC may seem like a brilliant way to participate without having to engage, experience illustrates that businesses do better when all members are equally engaged by providing a diverse set of skills. It also goes to say that distributing responsibility is the best way to ease the burden of management. Combined with the lessened tax burden by choosing an LLC formation, a team effort affords the best possibility for success.