How to Manage an LLC? (Everything You Need to Know)
Managing a limited liability company (LLC) primarily involves overseeing day-to-day business operations, making business decisions, handling finances and transactions, and dealing with legal issues.
With over a decade of practice as a business consultant for Limited Liability Companies in various states, I conducted comprehensive research to provide you with the ways you could manage an LLC.
I collaborated with lawyers and legal advisors from the Venture Smarter team to provide you with legal analysis and all the information you need.
Quick Summary
- Hiring or appointing the right manager is crucial for the success of an LLC, considering factors like the operating agreement, organizational structure, and state legal aspects.
- An LLC can be either manager-managed or member-managed, affecting how daily operations and decision-making processes are handled.
- According to the Commerce Institute, the surge in new businesses, with 5.5 million LLCs started in 2024—an 8.7% increase from the previous year—highlights the growing importance of effective LLC management strategies to navigate this competitive landscape.
- In my experience, the resilience and adaptability of an LLC's management structure are pivotal to navigating the ever-changing business landscape.
How To Manage an LLC
Based on our experience, several procedures and processes need to be completed by the person in charge of managing an LLC. The manager should oversee that the following are accomplished:
1. Following the Operating Agreement
An LLC operating agreement is a crucial document for both single-member and multi-member LLCs.
Given that an average of 20.8% of businesses in the US don't survive the first year, as reported by Lending Tree, understanding and adhering to your responsibilities outlined in the operating agreement is essential for effective company oversight and survival.
The operating agreement serves as a key tool to manage an LLC and ensure liability protection.
The operating agreement outlines various aspects, including:
- Roles and responsibilities of the manager.
- Operational guidelines for the manager.
- The management structure of the business.
- Procedures for member meetings and voting rights.
- Stipulations regarding members' rights within the LLC structure.
"By creating and adhering to an operating agreement, you establish clear guidelines for managing your LLC and safeguarding its interests."
-Jon Morgan, Co-Editor & Co-Founder of Venture Smarter
2. Obtaining an EIN
You can obtain an Employer Identification Number (EIN) once you have registered with the Internal Revenue Service (IRS) [1].
From our experience, the EIN is required to open an LLC business bank account and hire employees.
3. Dividing Personal and Business Assets
The manager should ensure that the business and personal assets of each member are separate. This would protect the personal property of LLC owners from creditors or lawsuits.
4. Handling Paperwork
The manager can delegate handling the LLC paperwork for the company but has to make sure all legal documents are in order.
These include the annual filing, LLC annual reports, amendments, and other paperwork made in the name of the limited liability company.
5. Allocation System for LLC
The terms of the allocation system are contained in the LLC operating agreement.
The manager has to ensure that the share of profits is distributed proportionately among the LLC members based on the percentage of ownership.
6. Filing Annual Reports and Taxes
The manager ensures all tax payments and annual reports are filed to the IRS by an appointed representative.
7. Other Important Considerations
We recommend that, as a manager, you verify that a contract is legal or valid before collaborating with other business entities.
You also must make sure the LLC complies with all state operating requirements.
You must recommend that the company be covered by corporate insurance to protect its assets from any legal matters that may arise.
What Is a Manager-Managed LLC?
A manager-managed LLC is a company where members appoint a professional manager to handle the daily operations of the business.
In contrast, member-managed LLCs are businesses in which all members share the responsibility of running the company.
Opting for a manager-managed LLC allows members to delegate operational tasks, providing them with more time and flexibility.
Conversely, member-managed LLCs grant all members direct control over the company but require increased commitment and effort to ensure smooth operations.
If you are still unsure about which type of management structure is right for your business, we recommend consulting an attorney from a reputable law firm who can help you weigh out the pros and cons of both options.
Who Are Members of an LLC & Who Manages the LLC?
Members of an LLC are the owners who contribute resources to the company. A manager, appointed by the members, handles the day-to-day operations and legal document submissions.
Members can be individuals, partnerships, or S corporation businesses. A member of an LLC has rights and responsibilities toward the company.
This includes having voting power in decision-making, receiving financial benefits from LLC operating agreement provisions, sharing responsibility for debts, or assuming the risk of another company party incurring one.
A manager is usually appointed by the LLC owners and is responsible for running the business's day-to-day operations, such as submitting legal documents.
They do not have to be members of the company, but they need to know about operating an LLC. In some cases, members may also act as managers.
Who Are the LLC Managers?
LLC managers are knowledgeable professionals with diverse backgrounds and expertise in LLC operations. Managers must provide comprehensive guidance on LLC management to all members.
From our experience, the most effective way to manage an LLC is to create a collaborative atmosphere in which both managers and members operate as a cohesive unit.
By working together towards shared objectives, all parties involved in the company can reap the benefits of this collective effort.
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FAQs
Can I Manage My LLC?
Yes, you can manage your LLC, but it will require more time and effort on your part. You must also have some knowledge about how to operate an LLC.
Does an LLC Have to Have a Manager?
No, an LLC does not have to have a manager. However, it is usually best for members with more knowledge about operating an LLC to manage the business instead of everyone taking on equal responsibility.
How Many Members Should an LLC Have?
There is no specific number of members an LLC must have to be formed. However, most states require that an LLC have at least two members.
References:
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
