LLC Operations: Member vs. Manager-Managed in Michigan
One of the most important decisions you’ll make when forming a Michigan LLC is choosing its management structure: member-managed or manager-managed. The structure you select determines who controls daily operations, how decisions are made, and the roles of those involved in your business.
In this blog, we’ll break down the differences between member-managed and manager-managed LLCs, the pros and cons of each, and why specifying your management structure in your Articles of Organization is crucial.
Default Management Structure of LLCs
In Michigan, LLCs are member-managed by default unless otherwise specified in the LLC’s Articles of Organization or operating agreement. This means that all members (owners) share responsibility for running the business.
However, depending on your business size, goals, and member roles, you may want to opt for a manager-managed structure to provide greater flexibility.
What Is a Member-Managed LLC?
In a member-managed LLC, all members actively participate in the day-to-day operations of the business. This structure is common for small businesses or those with a few owners who want to share decision-making responsibilities.
Key Features:
Equal Decision-Making Authority: Each member has an equal say in business decisions unless otherwise specified in the operating agreement.
Hands-On Involvement: Members are actively involved in managing the company’s operations.
Transparency: Members have full visibility into the company’s financial and operational activities.
Best For:
Small businesses with few members.
Businesses where all members want to actively manage operations.
Startups with limited resources that don’t require separate management roles.
What Is a Manager-Managed LLC?
In a manager-managed LLC, the members designate one or more managers to handle the day-to-day operations. Managers can be members of the LLC or outside professionals hired to manage the business.
Key Features:
Delegated Authority: Only managers have decision-making authority over the business’s daily operations.
Member Roles Are Limited: Non-managing members take a more passive role, focusing on their investment in the business rather than operational tasks.
Flexibility: Allows for professional management and scalable growth.
Best For:
LLCs with a large number of members who don’t want to be involved in daily management.
Businesses requiring professional or specialized management.
Companies looking to scale or attract investors.
Why Manager-Managed LLCs Provide Flexibility
For larger or more complex businesses, a manager-managed LLC offers distinct advantages:
Streamlined Decision-Making:
With fewer individuals involved in daily operations, decisions can be made quickly and efficiently.Attracting Passive Investors:
Manager-managed structures appeal to investors who want to contribute capital but not be involved in management.Professional Management:
Hiring experienced managers can improve operational efficiency and allow members to focus on strategy or other ventures.Scalability:
Delegating management roles makes it easier to scale operations as the business grows.
Why Specifying Management in Your Articles of Organization Is Crucial
When forming your LLC, it’s essential to specify whether your business will be member-managed or manager-managed in your Articles of Organization. This designation ensures clarity and avoids legal disputes later.
Additional Steps to Ensure Smooth Management:
Create an Operating Agreement:
Clearly outline roles, responsibilities, and decision-making processes in your LLC’s operating agreement.Communicate with Members:
Make sure all members understand the management structure and their roles within the business.Update as Needed:
As your business grows or changes, revisit your management structure to ensure it still meets your needs.
Which Structure Is Right for You?
The right management structure for your LLC depends on factors like:
The size of your business.
The number of members.
Whether members want to actively manage or act as passive investors.
Your long-term growth and operational goals.
For small businesses or family-run companies, member-managed structures are often sufficient. For larger businesses or those seeking outside investment, manager-managed structures offer the flexibility and scalability needed to succeed.
Take the Next Step in Starting Your LLC
At our offices in Detroit, Dearborn, and Royal Oak, we help entrepreneurs across Southeast Michigan choose the right management structure and set up LLCs for long-term success. Whether you’re just starting out or restructuring an existing business, we’re here to guide you.