VIDEO: Should My LLC Be Member Managed or Manager Managed?

June 14, 2022

Video Recap:

  1. In an LLC managed by the members, every member can perform the functions of the LLC within the purpose of the LLC as set forth in the operating agreement.
  2. Managers are elected by members and are the ones conducting the LLC business, while members are more passive in a manager managed LLC.
  3. Real Estate Investment Companies are commonly manager managed, where members are passive investors.
  4. Making sure everyone understands their role in the company is an important part of this decision making process and the overall formation of the company.

Management of your LLC is an important decision to make sure you get right from the start.  Assigning your LLC management structure is one of the first considerations in forming your LLC in Texas and is one that can have long lasting effects on how your business is run on a day to day basis.  But when your attorney asks whether you want your Texas LLC, Series LLC, or PLLC to be managed by Members or the Managers, what exactly are they asking you?

Member Managed LLCs in Texas

A Member-Managed LLC is just that—managed by the members as a whole.  All members of the LLC have rights to operate and run the business and are for all intents and purposes, legal agents of the company.  Your operating agreement for  a member managed LLC can also break down the voting or ownership rights of each respective member.  For instance, the initial member who started the business may retain a 60% interest in the company while the new partners each have a 20% stake.  This allows the new members to participate in and operate the company because they are members, but also recognizes the significant input of the original owner and lets them control the direction of the company in all decisions requiring only a majority vote.  But importantly, even though the new members only have a 20% stake, they are equally as able as the original partner with his 60% interest to act as an agent of the LLC and bind the LLC to contracts, or being signatories on loans and other financial documents.

Manager-Managed LLCs in Texas

A manager managed LLC takes the authority to act on behalf of the LLC and delegates that to one or more managers.  The members still have their voting interest and can have say over large moves such as admitting other members or dissolving the company, but the manager takes over as the legal agent of the company.  The manager can make decisions on behalf of the company, run the day to day operations, and otherwise “manage” the LLC.  This structure is seen often in Texas Series LLCs, where passive investors are the members of the Series providing funds for the managers to use to buy, sell, and hold real estate.

Hiring an attorney to form your new LLC can help you answer questions such as whether your company would be best managed by the members or managers, and how this can affect your company in the future.  Texas LLC formation attorney Nathaniel Gilbert can help direct the formation of your new business in the most efficient and forward thinking direction.  To learn more about LLC formation in Texas, Click Here.  To get in touch with Nate directly, Click Here.

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Nathaniel Gilbert is the sole attorney at The Law Office of Nathaniel Gilbert, PLLC. Practicing in the areas of Real Estate and Business, Nate serves the states of Texas, Colorado, and Kansas. He can be reached at 726-999-0087.