As a business owner, you have many options when choosing your company’s legal structure. One popular option is to form a limited liability company. LLCs are popular because they offer personal asset protection and have flexible management structures.
When you form an LLC, it’s crucial to decide the management and authority structure of the company. This structure is important as it can have significant legal and tax implications and impact your business’s day-to-day operations.
In this blog post, we’ll look at and differentiate the two types of LLCs in North Carolina: member-managed LLCs and manager-managed LLCs. Another related aspect is whether you have a single-member or multiple-member LLC. This comes down to the number of owners.
Understanding the Fundamentals of a Limited Liability Company
The North Carolina General Statutes Chapter 57D, commonly known as the North Carolina Limited Liability Company Act, defines an LLC as a separate entity from its owners.
An LLC is a business structure that separates the owner’s personal assets from their business liabilities. This means that if your LLC is sued, your assets, including your home, car, and savings account, are protected against confiscation.
As the name suggests, LLCs offer limited liability protection. This means that the LLC owners, also known as members, are not personally liable for the debts and obligations of the business. Instead, owners can use only the business’s assets to pay off creditors.
LLCs also offer flexibility regarding taxes as they offer pass-through taxation. This means the business is not taxed; instead, the profits and losses are “passed through” to the owners’ personal tax returns.
Member vs Manager-Managed LLC in NC Video
What is a Member-Managed LLC?
A member-managed LLC is owned and managed by its members. In other words, the company’s owners are directly involved and responsible for running the business’s day-to-day operations.
Member-managed LLCs are the most common type of LLC, as they offer simplicity and flexibility. A member-managed structure may be the best option if you have a small LLC with only a few owners.
Advantages of a Member-Managed LLC
There are several advantages of a member-managed LLC, including:
- Ownership: All members have an active role and an equal say in how the business is run. This includes making decisions about major purchases, hiring and firing employees, and setting product and service prices.
- Flexibility: Member-managed LLCs offer flexibility when it comes to management and decision-making. The members can decide how they will run the daily operations.
- Simplicity: Member-managed LLCs are simpler to set up and maintain than other business structures. This is because of the smaller management team and the lack of formalities.
Disadvantages of a Member-Managed LLC
There are a few disadvantages of member-managed LLCs to consider, including:
- Decision-making: All members must unanimously agree on major decisions. This can lead to disagreements and gridlock if members have different opinions.
- Management: All members of a member-managed LLC are responsible for running the business’s operations. This can be time-consuming and take away from the other aspects of the business.
- Investments: Investors usually want a say in managing the company and want to avoid being involved in daily business operations.
What is a Manager-Managed LLC?
A manager-managed LLC is owned by its members but managed by a team of appointed managers. The managers are responsible for making decisions and running the business. While one or more members are often appointed as the manager, non-members can also serve in this role.
Manager-managed LLCs offer more structure and formality than member-managed LLCs. This can be a good option for businesses with multiple owners or investors who want a passive role in the company’s management.
Advantages of a Manager-Managed LLC
There are several advantages of a manager-managed LLC, including:
- Efficiency: Manager-managed LLCs can be more efficient as the managers are focused on running the business. This leaves members free to focus on other aspects of the business.
- Stability: Manager-managed LLCs offer stability as there is a clear division of labor and everyone knows their role and responsibilities. This can make businesses run more smoothly.
Disadvantages of a Manager-Managed LLC
There are a few disadvantages of manager-managed LLCs to consider, including:
- Loss of control: Members of a manager-managed LLC have less control over the business than members of a member-managed LLC. This is because the managers make the decisions about how the business is run.
Which One Should You Choose?
The type of LLC you choose will depend on your business needs and goals. A member-managed LLC might be the right choice if you want a simple and flexible business structure where members are actively involved and working together to make day-to-day decisions for the business. In contrast, a manager-managed LLC might be the better option if you want a more formal and stable business structure where members choose a manager or multiple managers to run the business.
You should also consider the size and complexity of your business. A manager-managed LLC might be the better option if you have a large and complex business with many members.
It is also crucial to consider the people involved in your business. A member-managed LLC is the best choice if you are the sole owner. Consequently, a manager-managed LLC might be a good option if you have multiple owners or investors.
No matter which type of LLC you choose, it is vital to have a well-written operating agreement in place. This document will outline the roles and responsibilities of the members and managers and the rules for running the business.
Can You Change LLC Types?
Yes, you can change the type of LLC you have. To change your LLC type, you will need to amend your Articles of Organization. This document will need to be filed with the Secretary of State.
You will also need to amend your operating agreement. This document can be amended at any time by the members or managers of the LLC.
Changing your LLC type can be an excellent way to adapt your business to evolving needs. It can also be a good way to add or remove members from the LLC.
Start Legally With Drafted Legal
When starting a business in North Carolina, one of the first decisions you’ll need to make is what type of legal entity to form. No matter what type of LLC you choose, having the proper legal know-how is vital to get your business started on the right foot.
At Drafted Legal, we will file your LLC for you in 7 days and provide unparalleled resources and customer service to make sure you have the peace of mind you deserve.
We also offer a comprehensive guide to help you form a legal foundation for your business to grow and thrive. Contact us today to learn more about how we can help you.