When choosing who should run my llc members or managers what are the differences?
A member is the owner of the LLC. Think of them like shareholders in a corporation.
A “manager” is a person who has the power to make decisions on behalf of the LLC.
In a member-managed LLC, the members (owners), make all the decisions. It’s sort of like running a partnership.
In a manager-managed LLC, a manager (who is not an owner/member), is hired by the owner(s) to manage the day to day operations of the company.
Before the IRS changed the rules to allow LLCs to simply choose whether to be taxed as partnerships or corporations (called “check the box” regulations), whether an LLC was manager or member-managed could impact its tax classification. There was a four part test to determine if the LLC was more like a corporation or a partnership.
This is not an issue anymore, which is good because the old system was complex and confusing.
If the members (owners) of the LLC are going to operate the LLC on a daily basis, the LLC should be member-managed.
If the members are hiring some non-owner to manage the company, then it is a manager-managed LLC and they need to appoint that person as Manager.