Managing member: Overview, definition, and example
What is a managing member?
A managing member is a person who has been designated to manage and make decisions for a limited liability company (LLC) or a similar business entity. In an LLC, the managing member is typically one of the owners (also called members) of the company who has been given the authority to handle the day-to-day operations, oversee business activities, and make key decisions on behalf of the LLC. This role often comes with greater responsibilities and legal obligations compared to other members who may be passive or limited in their involvement with the company.
In simpler terms, a managing member is an owner of a business who is in charge of running the company and making important decisions.
Why is a managing member important?
The managing member is important because they are responsible for overseeing the operations of the LLC and ensuring that the business runs smoothly. They play a critical role in shaping the company’s direction, handling legal and financial matters, and representing the business in dealings with clients, investors, and other parties. The managing member is also the key decision-maker, so their actions can significantly impact the company's success and legal standing.
For SMB owners, understanding the role of the managing member helps clarify how decisions are made within the company and what responsibilities come with managing the business. It also ensures that the managing member is held accountable for the company's actions and obligations.
Understanding a managing member through an example
Let’s say your business is a limited liability company (LLC) that provides marketing services. You and a partner form the LLC, and you both agree that you will take on the role of managing member. This means that you are responsible for running the day-to-day operations, handling client accounts, managing employees, and making key business decisions. Your partner, as a non-managing member, is a silent partner who invests in the business but does not have a role in managing its operations.
In this case, as the managing member, you have the authority to make decisions on behalf of the LLC, but you are also responsible for its success and ensuring compliance with laws and regulations.
Example of a managing member clause
Here’s an example of what a managing member clause might look like in an LLC operating agreement:
“The managing member of the LLC shall have the authority to make all decisions regarding the operations and management of the Company, including but not limited to entering into contracts, hiring employees, and managing financial matters. The managing member shall act in the best interest of the Company and is accountable for the Company’s performance and compliance with applicable laws.”
Conclusion
A managing member plays a central role in the daily operations and decision-making of a limited liability company (LLC) or similar business structure. For SMB owners, understanding the responsibilities of a managing member is crucial for effective business management and ensuring clear roles within the company. By clearly defining the role and authority of the managing member, businesses can streamline decision-making and establish accountability, which is key to long-term success.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.