Member-Managed vs. Manager-Managed LLC in South Carolina

Written by Wesley Henderson

January 4, 2023

An LLC, or limited liability company, is a business entity that provides liability protection to its owners. Meaning, the owner’s assets are protected if the LLC is sued.

LLCs are the most popular form of liability protection these days (much more frequent than a corporation). They can be set up with various different aspects and many terms are thrown around.

LLCs can be member-managed or manager-managed. When you hear this, it is all about who is in charge and making decisions for the LLC. In a member-managed LLC, the decisions are made by the members.  All members can bind the company in a member-managed LLC.

On the other hand, in a manager-managed LLC, a “manager” is appointed to make the company’s day-to-day operations. Only the manager can bind the LLC. The manager can also be a member, or not. That decision is made by the members.

LLCs are popular in South Carolina because they offer the limited liability protection of a corporation without many restrictions on ownership and operation. For example, there is no limit on the number of members an LLC can have, and members do not need to be residents of South Carolina. The formalities are reduced with an LLC and tax options are plentiful.

This article will discuss the critical differences between member-managed and manager-managed LLCs in South Carolina. We will explore the advantages and disadvantages of each type of LLC, as well as considerations for choosing one over the other. Whether you are starting a new business or considering restructuring your existing company, this article will help you make an informed decision that best meets your needs. Another related but different term that you may run into is whether your LLC will be a single-member or multi-member LLC. The sum of this is if there is one owner, it’s a single member; more than one owner, then multi-owner. Read more here.

Member-Managed LLC

A member-managed LLC is a type of LLC in which all members have an equal say in the company’s management. This type of LLC is popular in South Carolina because it offers the limited liability protection of a corporation without many restrictions on ownership and operation. For example, there is no limit on the number of members an LLC can have, and members do not need to be residents of South Carolina.

Advantages of a Member-managed LLC Include:

  • Equal say in management:  All members have an equal say in managing the company, which can be important for smaller businesses that need to make decisions quickly. This decision making structure can be altered in the operating agreement but is ultimately vested in the members.
  • Limited liability protection:  Members are protected from personal liability if someone sues the company. This can be important for business owners who want to protect their assets.
  • Flexible membership: There is no limit on the number of members an LLC can have, which gives businesses the flexibility to grow as needed.
  • Tax advantages:  Member-managed LLCs enjoy many of the same tax advantages as corporations, including pass-through taxation and the ability to deduct business expenses.

Disadvantages of Member-managed LLCs Include:

  • Difficulty making decisions: Because all members must agree, member-managed LLCs can be slow to make decisions. This can be a problem for businesses that need to move quickly to take advantage of opportunities.
  • Less control by managers: In a manager-managed LLC, one or more members appoint a manager who oversees the company’s day-to-day operations. This gives managers more control over the company’s day-to-day operations than they would have in a member-managed LLC.
  • More paperwork: Member-managed LLCs must file articles of organization with the state and maintain meeting minutes and other documentation related to company decisions. This can be time-consuming and burdensome for businesses that don’t have the resources to manage this paperwork.

Manager-Managed LLC

A manager-managed LLC is a type of LLC in which one or more members appoint a manager who oversees the company’s day-to-day operations. This type of LLC is popular in South Carolina because it offers the limited liability protection of a corporation with delegation of decisions to a manager. This is a great way structure to limit members abilities to bind the LLC. It’s also great if someone wants to be a “silent investor.”

Advantages of Manager-Managed LLCs Include:

  • More control by management: In a manager-managed LLC, one or more members appoint a manager who oversees the company’s day-to-day operations. This gives managers more control over the company’s day-to-day operations than they would have in a member-managed LLC.
  • Easier to make decisions: Because members appoint the manager, decisions can be made quickly without unanimous consent.
  • Less paperwork: Manager-managed LLCs only need to file articles of organization with the state, which is much simpler than filing meeting minutes and other documentation related to company decisions like member-managed LLCs do.

Disadvantages of Manager-Managed LLCs Include:

  • Less member involvement: In a manager-managed LLC, members are less involved in the company’s day-to-day operations than in a member-managed LLC. This can lead to communication problems and decreased morale.
  • More expensive: Managers often require compensation for their time and effort, which can be costly for businesses.
  • Potentially less liability protection: If something goes wrong with the business, members may not be protected from personal liability if they are not managers. This can be a problem for companies that want to protect their assets.

How To Choose Between a Member-Managed and Manager-Managed LLC in South Carolina?

When deciding between a member-managed LLC and a manager-managed LLC in South Carolina, there are several factors to consider. The level of member involvement you want in your business operations is one of the most important. A member-managed LLC may be better if you prefer to be more actively involved in day-to-day decisions.

On the other hand, a manager-managed LLC might be a better choice if you prefer to have less involvement but want more control over major decisions. Other factors to consider may include the amount of paperwork required for each option, the cost of appointing and compensating managers, and your tolerance for potential personal liability if something goes wrong with your business. Ultimately, the choice between member-managed and manager-managed LLCs will depend on your individual needs and preferences as a business owner.

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Conclusion

The member-managed LLC and the manager-managed LLC are two different business entities that offer various benefits to their owners. The member-managed LLC is more flexible and gives its members more control over the company, while the manager-managed LLC protects its owners from personal liability. It is essential to consider which type of LLC is right for your business before deciding, as each has its advantages and disadvantages. Whether you choose a member-managed or manager-managed LLC in South Carolina, it is essential to carefully consider your options and make the right choice for you and your business.

Wesley Henderson

Hi, I'm Wesley! A business attorney turned entrepreneur devoted to simplifying how you protect your business and your assets. Like you, I'm an business owner so I get it and I started Drafted Legal to help you put in place simple and sound legal strategies so you can focus on your business and not worry about getting lost in legal nuances.

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