Have you just chosen to operate in Georgia as an LLC? If you have, you stand to reap the benefits of personal liability protection and flexible taxation. However, after deciding to form an LLC, you are not out of the woods yet. You still have to determine whether your LLC will be member-managed or manager-managed.
Knowing the difference can make or break the successful operation of your LLC. Fail to make the distinction, and you might run into problems with your co-owners and investors. Also, you might find yourself in shock after discovering your limited control over your company.
By knowing whether to operate as a member-managed LLC or manager-managed LLC, you and your co-owners can take steps toward deciding how to run the company. As a result, your company will thrive with a clear corporate structure that matches your needs and wants.
If you wish to learn more about LLCs in Georgia, read on. Also, read further to see whether your company should be a manager-managed or member-managed LLC in Georgia.
What Is an LLC in Georgia?
LLC stands for “limited liability company.” It is a corporate structure that enables business owners to protect their personal assets from corporate liabilities.
Many business owners in Georgia choose an LLC business structure for two reasons. First, an LLC offers the same level of personal liability protection as a C-corporate or S-corporate business structure. Also, because an LLC is smaller than a corporation, the tax liabilities are not as steep. An LLC shares the same tax pass-through benefit as a partnership or sole proprietorship.
In short, an LLC gives business owners the best of both worlds when it comes to business structures. LLCs are structures that allow business owners to protect their assets and enjoy more flexible tax terms at the same time.
What Is a Member-managed LLC in Georgia?
There are two types of LLCs in Georgia. One is a member-managed LLC.
A member-managed LLC is an LLC structure where the LLC owners (or members) retain all decision-making and management prerogatives. Under this type of LLC, members directly oversee the company’s daily operations. In a member-managed LLC, the members may or may not have equal say over the company, depending on the stake or share a member holds.
Of course, barring certain stipulations, the owner or member with the highest share or stake controls more than the owner who has less. For example, if you own 50% of the LLC, and your business partners have 25% each, you have the most control over the company.
However, regardless of the say each member has, decisions move forward only after all members have voted on company actions. For this reason, company decisions can take longer in a member-managed LLC.
When Does It Make Sense To Operate as a Member-managed LLC?
You may want to choose to operate as a member-managed LLC in Georgia if you want to retain more control over your company. As mentioned earlier, a member-managed LLC is a structure that allows owners to have full control over the company. Everything from decision-making to financing is under the scope of members under this LLC structure.
You may also operate well as a member-managed LLC if you are sharing control with two to four co-owners or members. Under a member-managed LLC, you and your co-members must vote on almost every decision. The fewer your LLC members, the sooner you can get all votes. As a result, your corporate actions will be faster.
Are There Drawbacks To Operating as a Member-Managed LLC in Georgia?
There are three disadvantages to member-managed LLCs. First, every business action depends on a vote. This may not be a problem in all cases, however, it can mean delays, especially if one or two members refuse to cast their votes.
Another drawback associated with member-managed LLCs is the difficulty in attracting investors. Most investors opt for LLCs with a manager-managed structure out of risk aversion. Hence, investors may pull out after discovering that you and a few other people are managing the company.
Lastly, operating a member-managed LLC is a full-time job. After all, the structure necessitates full involvement of all member’s in the LLC’s daily operations.
What Is a Manager-managed LLC?
A member-managed LLC will not suit every company. Alternatively, people starting LLCs in Georgia can choose to operate as manager-managed LLCs.
Unlike in member-managed LLCs, managers designated by the LLC members take control of the company’s daily operations. As a result, designated managers have full autonomy over transactions, financing, and other business decisions.
When To Operate as a Manager-managed LLC
A manager-managed LLC structure is suitable for LLCs with many members. With a manager at the helm of decision-making, there is no need to get the votes of all members before taking business action.
You can also operate as a manager-managed LLC if you need help overseeing your company. After all, managing an LLC is a full-time responsibility, and not everyone has the luxury of extra time to oversee operations.
Things To Consider Before Operating as a Manager-managed LLC
Because managers gain full control of your company’s decisions, you must establish lines of control. To do this, you may have to carefully outline where managers have control and where they do not.
Another thing to consider is that your manager is not a co-member but an employee. Hence, you need to pay your manager a salary — something not every startup can do.
Lastly, you have to hire a manager who shares your understanding of the business. Doing this may be challenging or easy, depending on the complexity of your business.
Are You a Manager-managed or Member-managed LLC in Georgia? Protect Your Business at a Fraction of the Costs
Whether you choose to operate as a member-managed or manager-managed LLC, you need agreements that set everything straight for your co-members or manager.
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