Member-Managed vs. Manager-Managed LLCs: What Delaware Does (and Does Not) Require
When forming a Delaware LLC, business owners often focus on ownership, but how the company is managed is just as important.
In an LLC, the owners are referred to as members. Depending on the structure, those members may manage the company themselves, or they may appoint one or more managers to handle the operations. In some cases, a member may also serve as a managing member, taking on a more active role in running the business.
What often surprises business owners is that the management structure is not identified in the Certificate of Formation filed with Delaware to create the LLC. Instead, it is defined internally in the LLC’s Operating Agreement.
Understanding these roles and how they are documented is key to properly structuring your LLC.
What is a Member-Managed LLC?
In a member-managed LLC, the owners of the company, known as members, are directly involved in running the business.
Each member typically has the authority to make day-to-day business decisions, enter into contracts on behalf of the LLC, and act as an agent of the company.
This is the most common structure for small businesses and closely held companies, where the owners are actively involved in operations.
What is a Manager-Managed LLC?
In a manager-managed LLC, the members appoint one or more managers to handle the operations of the business.
The managers may be members of the LLC or outside individuals or entities.
In this structure, the members take on a more passive role, while the designated managers are responsible for decision-making and authority.
This format is commonly used when there are passive investors, when the ownership group is larger, or when the members prefer centralized management.
Where is Management Structure Documented?
Delaware does not require you to disclose how your LLC is managed when filing the Certificate of Formation. The filing itself is intentionally minimal and does not include details about members, managers, ownership percentages, or internal structure.
Instead, these details are set forth in the LLC’s Operating Agreement, which is an internal document and not filed with the state.
This approach reflects Delaware’s emphasis on flexibility and privacy for business owners.
Why the Operating Agreement Matters
Delaware does not publicly record management structure. Instead, the Operating Agreement becomes the controlling document for how the LLC is run.
It defines who has authority to act on behalf of the LLC, how decisions are made, and the roles and responsibilities of members and managers.
Without a clear Operating Agreement, there can be uncertainty or disputes over who has the authority to bind the company. This is especially important in manager-managed LLCs, where third parties may need clarity on who is authorized to act.
Choosing the Right Structure
The decision between member-managed and manager-managed should be based on how you intend to operate the business.
More often than not, LLCs are structured as member-managed, particularly for small businesses and closely held companies where the owners are actively involved in day-to-day operations.
A member-managed LLC is often appropriate when all owners are actively involved, the structure is simple, and decision-making is shared.
A manager-managed LLC may be a better fit when some owners are passive investors, when you want to separate ownership from control, or when you prefer centralized management.
LLC Agreement Templates
When putting your Operating Agreement in place, many LLCs start with a template tailored to either a member-managed or manager-managed structure.
- Member-Managed LLC Operating Agreement template (.doc file)
- Manager-Managed LLC Operating Agreement template (.doc file)
These free LLC Operating Agreement templates are intended to provide a starting point and can be modified to suit the specific needs of your LLC. While Harvard Business Services, Inc. cannot assist in drafting or customizing your Operating Agreement, these templates can help guide you in documenting your LLC’s management structure.
It is also important to note that your LLC’s Operating Agreement is an internal document. It is not filed with the State of Delaware, and we do not require a copy for our records.
Final Thoughts
Delaware’s LLC laws are designed to offer flexibility and limited information part of the public record. The state does not require you to publicly disclose how your company is owned or managed.
That flexibility is a benefit, but it also places responsibility on the LLC to clearly document its structure internally.
Whether your LLC is member-managed or manager-managed, the Operating Agreement is where that decision is defined and where it should be carefully documented.
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