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What's the difference between a member-managed and manager-managed LLC?

California limited liability companies (LLCs) are governed by the California Revised Uniform Limited Liability Company Act (RULLCA). Under RULLCA, LLCs may be managed either by all of the members ("member-managed") or by one or more managers ("manager-managed"). As a default rule under RULLCA, the LLC is managed by all of its members unless the articles of organization and operating agreement provide otherwise. Corp. Code § 17704.07(a). Thus, we must ask "In practice, how do these two management types function?"

In essence, a member in an LLC is the functional equivalent to a shareholder in a corporation. In a member-managed LLC, the members act as agents of the LLC for the purpose of carrying on the day-to-day affairs of the entity. If the LLC has multiple members then matters in the ordinary course of the LLC's business will be decided by a majority of the members, and acts outside the ordinary course must be unanimously approved. Corp. Code § 17704.07(b). In contrast, the members also have the option of appointing a manager to manage such affairs. By electing a manager, the members do not have to be active participants in the day-to-day operations of the LLC. All ordinary matters of business are decided by the manager (or managers) of the LLC.

Each method of management has its advantages and disadvantages and ultimately depends on the unique nature of the business and the preferences of the owners of the LLC. If you are considering forming a limited liability company, corporation, or any other type of entity, give us a call today to discuss your various options.

Ariel Bedell is an experienced attorney at The Loftin Firm. For questions relating to this blog or any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at (760) 814-9649.

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