Also known as:manager-managed LLCs · manager managed LLC · manager-managed limited liability company
Written by attorneys — see sources below.
A limited liability company whose operating agreement designates one or more managers to manage its business and affairs. Members in such an entity hold no management authority or fiduciary duties by default. Decisions on company matters are made by the manager or, if more than one, by a majority of the managers.
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How its tested
Common Examples
2
Demand on Managers for Derivative Suit
Malcolm McKinley owns a minority interest in Apex Capital LLC, a manager-managed entity with Maya Malik as its sole manager. Malcolm learns that Maya diverted company funds to her personal account. He files a derivative action without first requesting that Maya cause the LLC to sue. The court dismisses the action because Malcolm failed to make the required demand on the manager.
Special Litigation Committee Appointment
Mosaic Retail LLC is manager-managed with three designated managers. A member files suit alleging self-dealing by one manager. The other two managers seek to form a special litigation committee consisting of a non-manager member. The court rejects the committee because only managers may serve on it under the entity's governance structure.
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Test Yourself
10
Practice Questions5
· 8 primary sources
Uniform Acts
Obeid v. Hogan2016 WL 3356851, at *6 (Del. Ch. June 10, 2016)
Who holds management authority in a manager-managed LLC?
Designated managers hold management authority. Members have no authority to manage or bind the company on matters relating to its activities and affairs unless the operating agreement provides otherwise.
Supporting sources
Must a member make a demand on managers before filing a derivative action?
Yes. A member must first make a demand on the managers requesting that they cause the company to bring the action, and the managers must fail to act within a reasonable time, unless the demand would be futile.
Supporting sources
Can a non-manager serve on a special litigation committee in a manager-managed LLC?
No. Only managers may serve on a special litigation committee because the entity's governance structure limits core governance functions to managers.
Supporting sources
Business Associations Corporations and LlcsManagement and control · Members and managersUBEFoundational