What is a managing member of an LLC?

Member, manager and managing member

A member owns part of the LLC. A manager runs it, and may or may not own any of it. A managing member does both. State LLC laws mostly use the words member and manager, so managing member is usually a title you give yourself in your operating agreement.

What the default rules say

If your agreement is silent, state law decides. California treats an LLC as member-managed unless its articles say otherwise, and each member has an equal say. A majority of members decides ordinary matters. Delaware puts management with the members in proportion to their profit interests, and members owning more than 50 percent decide.

Delaware also says that, unless the agreement provides otherwise, each member and manager can bind the company. So a partner could sign a contract you never saw. That's a good reason to name who can sign, and for what.

What a managing member does

The agreement sets the job. Typical powers include signing contracts, opening bank accounts, hiring people and running daily operations. Many agreements keep bigger decisions, such as selling the company or adding an owner, for a vote of all members. A managing member often ends up as the responsible party on the EIN, since the IRS wants the person who owns or controls the company.

Duties that come with the role

Running a company for other owners comes with legal duties, often called fiduciary duties. In general you put the company ahead of yourself. Delaware lets the agreement expand, restrict or eliminate those duties, but it can't remove the implied covenant of good faith and fair dealing. Other states set their own limits. If you run an LLC with partners, an attorney can tell you what applies.

How you get paid

It usually isn't a salary. The IRS says partners aren't employees and shouldn't get a Form W-2. In an LLC taxed as a partnership, you get a share of profit reported on Schedule K-1. As the sole owner of a default LLC, you report the profit on your personal return and owe self-employment tax. An election to be taxed as a corporation changes this, so ask your accountant.

How to name one

Write it into the operating agreement. Say who holds the role, what they can do alone and what needs a vote. If your articles say the company has managers, make sure the two match. Some states also put these names on annual reports, so update those when the person changes.