If you are thinking about forming an Wyoming LLC (limited liability company), you may wonder about the difference between member-managed and manager-managed LLC’s. You will need to choose whether to form a member-managed LLC or a manager-managed LLC. Understanding the practical implications of this choice can help you set up the company the right way.
What Are LLC Members and Managers?
An LLC member is an owner of the company. Members contribute financially to the member-managed LLC. Some members also may act as managers in a manager-managed LLC. An LLC manager handles the day-to-day operations of the LLC for the members. Some managers may be outsiders – they are not members and have not invested in the LLC. Managers usually get paid for their work.
Member-Managed Versus Manager-Managed LLCs
Some small LLCs choose to be member-managed. This means that all the members handle the LLC’s day-to-day operations. Smaller LLCs may not need managers or may not be able to afford them.
In contrast, larger LLCs or those with complicated operations may be manager-managed. The managers can consist of:
· Some of the members
· A mix of some of the members and some nonmembers
Any members who are not managers act as passive investors in the LLC because they are not involved in handling day-to-day operations. The number of managers and specific duties of the managers are up to the LLC’s members to decide.
What Are the Advantages of Each Management Structure?
As mentioned above, smaller LLCs and those with limited resources may benefit from a member-managed structure. People who want to have direct control over operations and decision-making often choose a member-managed LLC.
Manager-managed LLCs are more common for larger businesses and those with complex operations. Handling the day-to-day simply may be impractical for the members in these businesses. Alternatively, some of the members may not have good management skills. Another common reason to choose a manager-managed LLC is because some or all of the member want to be passive investors rather than taking an active role in the LLC.
How Do You Document a Management Structure?
After you have selected a management structure for your LLC, you need to legally document your choice. If you choose manager-management, you should clearly describe the management structure in the LLC’s articles of organization and the operating agreement.
In the case of a small Wyoming LLC you might also want to consider a Close LLC. You can learn more about that here at this link.