Also known as:manager managed · manager-managed LLC
Written by attorneys · grounded in primary & secondary sources — see below
A form of limited liability company governance in which designated managers rather than the members themselves exercise authority over the company's business and affairs. The operating agreement must expressly state that the company is or will be manager-managed or use equivalent language to override the statutory default of member management. Managers owe fiduciary duties to the company and its members while members in this structure lack management authority and corresponding fiduciary responsibilities.
Sources & Authorities
How it applies
Common Examples
2
Demand on Manager Before Derivative Suit
Mustafa Mahmoud and Monica Morgan formed Momentum Capital LLC as a manager-managed company with Derek as the sole manager. Mustafa discovered that Derek had diverted company funds to a personal venture. Mustafa sent Derek a written demand that the LLC sue to recover the funds. Derek took no action for four months. Mustafa then filed a derivative action in his own name on the LLC's behalf. The court permitted the suit to proceed because the demand requirement for a manager-managed LLC had been satisfied.
Operating Agreement Designates Manager Management
Matthew Martinez and Madison Meyers formed Mosaic Retail LLC. Their operating agreement stated that the company would be manager-managed and named an outside professional as manager. When a non-manager member later attempted to bind the LLC to a major lease, the other members objected. The court held that the explicit designation in the operating agreement established manager management, so only the designated manager possessed authority to bind the company to the lease.
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Uniform Acts
Casebooks
Hornbooks
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Common questions
Frequently Asked
4
How does an LLC become manager-managed instead of member-managed?+
The operating agreement must expressly provide that the company is or will be manager-managed, managed by managers, or that management is vested in managers. Without such language the statute imposes member management by default even if the agreement creates internal committees or titles.
Supporting sources
Who must receive a demand before a member may bring a derivative action in a manager-managed LLC?+
The member must first demand that the managers cause the company to bring the action. Only after the managers fail to act within a reasonable time may the member proceed derivatively.
Supporting sources
Do members of a manager-managed LLC owe fiduciary duties?+
No. In a manager-managed LLC the members as members have no management authority and therefore owe no fiduciary duties to the company or other members. Only the designated managers owe those duties.
Supporting sources
What happens to a member's management rights when an LLC converts from member-managed to manager-managed?+
The members lose their default management authority. Decisions concerning the company's activities and affairs become the exclusive province of the manager or managers, and members retain only economic rights unless the operating agreement provides otherwise.
…Limited Liability Company Act (ULLCA). [^maj-21] To coordinate with later developments in federal tax guidelines regarding manager-managed LLCS, the Commissioners adopted minor changes in 1995. [^maj-22] The Commissioners further amended the ULLCA in 1996. Despite its purpose to promote uniformity and consistency, the ULLCA…
Business Associations Corporations and LlcsShareholder and member litigation: direct, derivative, and class litigation · Shareholder and member litigation: direct, derivative, and class litigationUBEFoundational