Why may Manager-Managed LLCs, fare better with regards to asset protection. but worse in terms of tax treatment, when compared to their Member-Managed LLCs counterparts?

John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

 

Kiritsis Law Group   

212 922 0005

 

The structure of the management of an LLC is one of the main factors that will contribute to the success of your business. The LLC should be managed by a group of individuals who are experienced in running a business and who are committed to the success of the company. The management team should have a clear vision for the company and a plan for how to achieve its goals. This plan should be achievable and realistic, and the team should be able to execute it effectively.

 

It is essential to understand the role that a managing member may play in a limited liability company. This is because the managing member may have certain rights and responsibilities that are different from the other members of the company. For example, the managing member may have the right to make decisions about the company's business operations, and may also be liable for the company's debts and obligations.

 

A managing member is a manager of the company who has equity rights in the LLC. This means that the managing member has a say in how the company is run and also has a financial stake in the company. 

 

A member-managed structure might be preferable when the organization is small and the members are well-acquainted with one another. This type of structure can help to promote communication and collaboration among members, as everyone is involved in the decision-making process. This can lead to a more cohesive team that is better able to work together to achieve common goals. In this type of structure, members are typically more invested in the success of the organization and may be more willing to take on additional responsibilities. This can lead to a more cohesive and effective team, as everyone is working towards the same goal.

 

A manager-management structure might be preferable when:

 

There is a need for clear and concise communication between managers and employees. This type of structure can help to ensure that everyone is on the same page and working towards the same goals. Additionally, a manager-management structure can help to promote accountability and efficiency within an organization.

 

A manager-management structure might be preferable when some members only want to be passive investors and do not want to be actively involved in the management of the company. In this type of structure, the manager is responsible for making all the decisions and the investors simply provide the funding.

 

A manager-management structure might be preferable when the members are not skilled at management. This type of structure can help to provide clear guidance and direction from those who are more experienced and knowledgeable in management. Additionally, it can help to ensure that tasks are completed efficiently and effectively.

 

A manager-management structure might be preferable when the ownership/business is too complex to allow all members to manage the company. In this type of structure, a manager or group of managers is responsible for making decisions and overseeing the day-to-day operations of the business. This can help to ensure that the business is run efficiently and effectively, and can help to prevent conflicts between members of the company.

 

Some benefits of a manager-managed LLC are that managers can make more effective and efficient decisions, are more attractive to passive investors, and can better handle complex business affairs.

 

Some downsides of owning a business are that owners may be excluded from critical management decisions and that it is challenging to find managers the owners trust. For example, if owners are not involved in day-to-day operations, they may not be aware of important issues that need to be addressed. Additionally, it can be difficult to find managers who are both competent and trustworthy, as they will be responsible for running the business in the owners' absence.

 

 

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The views expressed by this author are not legally binding or reflective of the author, the author’s firm, the author’s employers, the author’s employees, or any individual and/or organization.