Understanding Member-Managed LLCs: Co-Managers and Managing Members

When starting a small business, individuals who wish to enjoy the benefits of a company while preserving the tax benefits and lower liability of a partnership often turn to a Limited Liability Company (LLC). [1] This structure allows for flexibility in management and ownership, making it a popular choice among entrepreneurs. In this article, we explore the roles and terminology associated with member-managed LLCs, including the concepts of co-managers and managing members.

LLC Basics

A Limited Liability Company (LLC) is a hybrid business entity that combines the pass-through taxation and management flexibility of a partnership with the limited liability protections of a corporation. Unlike a traditional corporation or partnership, LLC owners are referred to as members.

Understanding Co-Managers and Managing Members

Co-managers in an LLC refer to the members who are responsible for the day-to-day operations and management of the business. These individuals typically have equal ownership shares and work together to run the company. In many cases, the term “co-managers” is used to describe the roles of these individuals, particularly in informal settings. [2] However, in more formal legal contexts, they might be referred to as managing members.

Member-Managed LLCs: The More Common Choice

The majority of LLCs are set up in a member-managed structure, where all members share the responsibility for daily operations and management. This model is particularly appealing because it eliminates the need for a separate manager to handle the business day-to-day, making the LLC a simpler and more cost-effective choice for many small business owners.

When discussing the LLC in an informal setting, it is common to use terms such as “partners,” “business partners,” or “co-owners” to describe those involved in the day-to-day operations. These terms are suitable for casual conversation but should be understood in the context of an LLC, where the “LL” stands for limited liability and the “C” indicates the business structure.

From a legal standpoint, the term for LLC owners is “members.” Members are responsible for making decisions and managing the business. If the LLC is set up to distinguish between ownership and management control, then the members in charge of management are referred to as managing members. Informally, they might also be described as managing partners. The equality of ownership shares does not affect the title or role of the members.

LLC operating agreements are legal documents that outline the rights and responsibilities of the members. Most operating agreements use the term “members” to refer to all owners, regardless of their level of involvement in management. However, some agreements may reserve the term for those who are actively involved in decision-making or have a right to vote on key decisions.

To sum up, the terms co-managers and managing members are used interchangeably in casual contexts to describe the equal owners of an LLC who are involved in the day-to-day management of the business. From a legal standpoint, the term “member” is used to denote ownership, while managing members specifically refer to those in charge of management. By understanding these terms and roles, entrepreneurs can better navigate the complexities of LLC management and ensure that their business is structured effectively.

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