When forming a new Limited Liability Company (LLC), states require you to declare how the business will be managed. This choice determines who has the legal authority to run day-to-day operations, sign contracts, and make binding decisions for the company.
During the LLC formation process on Dappr, you will be asked to select a management structure. Your selection is formalized in your LLC’s formation documents and its Operating Agreement. Understanding the difference between a member-managed and a manager-managed structure is critical for ensuring your company runs smoothly and that decision-making authority rests with the right people.
Management types in Dappr
In the Dappr formation workflow, you will see four options for how your business will be managed. Here is how they correspond to the two legal management structures:
Member-Managed: If you select “Owners only,” you are choosing a member-managed structure. This means all members (owners) will have the authority to run the business.
Manager-Managed: If you select “Some owners, but not all,” “Owner(s) and employees or others,” or “Only by employees and others,” you are choosing a manager-managed structure. In each of these cases, you are designating a specific person or group of people as "managers" with the authority to run the business, while other owners (members) will not have that same authority.
Member-Managed LLCs
In a member-managed LLC, all owners (known as “members”) share responsibility for the company’s daily operations. Every member has the authority to act on behalf of the business, such as opening a bank account, hiring employees, or entering into agreements.
This is the most common structure and is the default in most states if you do not specify otherwise. It is often the best choice for small businesses where all the owners intend to be actively involved in running the company.
You should consider a member-managed structure if:
Your LLC has only one or a few members.
All members want to participate in managing the business.
All members have the time and expertise to contribute to operations.
Manager-Managed LLCs
In a manager-managed LLC, the members appoint one or more managers to handle the daily operations. The members step back into a role similar to that of shareholders in a corporation, retaining the power to vote on major decisions but delegating day-to-day authority to the managers.
A manager can be a member, a non-member (such as an experienced executive hired for the role), or a combination of the two. This structure provides flexibility and is often used when some members wish to be passive investors or when the business requires specialized management.
You should consider a manager-managed structure if:
Some members are passive investors and do not want to run the business.
Your LLC has a large number of members, making group management impractical.
You plan to hire an outside professional to manage the company.
The members want to establish a formal management hierarchy.
The role of the Operating Agreement
Regardless of the structure you choose, it is essential to have a comprehensive Operating Agreement. This internal document defines the roles, responsibilities, and rights of all members and managers. Once your LLC formation is complete, Dappr automatically generates a tailored Operating Agreement based on the management structure you selected. You will be able to review and sign this document during your post-formation onboarding session.
In a manager-managed LLC, the Operating Agreement is especially critical, as it must clearly outline the managers’ powers, limitations, and compensation, as well as the process for appointing or removing them.