Can You Be Both a Manager & a Member in an LLC?

LLCs offer a flexible management structure, allowing business owners to take on any roles and responsibilities. Some can just own and invest in an LLC, while others wonder whether they can own and manage the entity.

In this article, we answer this question and discuss how an LLC member can successfully take on a managing role.

Key Takeaways

• LLCs can be managed by its owners or other individuals or companies. In any of these scenarios, you can own and run the business.
• Acting as a manager and a member of an LLC has its advantages and disadvantages. You get decision-making power and potentially save on costs, although both roles may increase personal liability for business obligations.
• Both roles can also increase your tax liability. For instance, an owner of an LLC taxed as an S corporation is subject to self-employment tax on their salary.
• A successful managing member must follow corporate formalities, seek expert advice, and practice proper record-keeping.

Can You Manage & Own an LLC?

To answer whether one can be a manager and a member in an LLC, we must look at its main types by management structure.

LLCs can be member-managed or manager-managed. In a member-managed LLC, all members handle the entity’s operations and make important business decisions. Moreover, they’re allowed to transact and work with vendors, suppliers, and other partners on the LLC’s behalf. Member-managed LLCs work best for new small businesses with a few owners.

Meanwhile, a manager-managed LLC has designated individuals to oversee its operations. The members stay involved in the business, but they’re just seen as passive investors. Managers can be selected members of the LLC, third parties, or a combination of both.

Regardless of how your LLC is or will be managed, you can be a manager and a member of the business. No law prevents you from holding these responsibilities, although you may face some challenges over time. We’ll discuss these drawbacks later.

Related Resources

• Learn the difference between member-managed and manager-managed LLCs from NCH’s blog.
• Watch the short video below for more about the roles and responsibilities of LLC members and managers.

The Benefits of Being an LLC’s Manager & Member

Owning and managing an LLC can give you the following benefits:

Make Major Business Decisions

When you serve as an LLC’s manager and member, you can make major business decisions with or without prior consultation or approval. It’s especially important if your LLC operates in a competitive, fast-paced market. After all, businesses in this environment are expected to respond to potential opportunities or risks fast.

Develop & Execute Corporate Strategies

Owning and managing an LLC also entails developing and implementing the best strategy for its long-term growth. As a result, daily operations can carry out your vision for your business without any issues.

Save on Business Expenses

If you own a manager-managed LLC with a third party overseeing its operations, you’d have to pay that person or business for their work. This can increase your business expenses.

Conversely, you can pay yourself a reasonable salary as a manager and get your share of an LLC’s profits and losses as a member.

The Drawbacks of Owning & Managing an LLC

Running and managing an LLC also comes with some disadvantages.

• If you’re a managing member, you may face personal liability for fraud, unprofessional conduct, or negligence while operating and owning the LLC.
• LLC owners acting as managers can get sued, questioned by regulatory authorities, or face member disputes.
• You may also be held liable for actions such as personal use of an LLC’s assets and financial commingling. (This judgment is known as “piercing the corporate veil.”)
• As a manager, you owe fiduciary duties to the LLC and its members, including yourself as a member. You must uphold these duties to avoid conflicts of interest and serve the best interests of the business.

Potential Tax Implications for Managing Members

Depending on how an LLC is taxed, being its manager and member can significantly affect your tax liability.

Owners of LLCs treated as sole proprietors for income tax purposes are subject to self-employment tax on their net earnings. But if an LLC elects the S corporation tax status, you can pay yourself a reasonable salary for managing the business. That’s in addition to your share of the LLC’s profits and losses, although dividends aren’t subject to the SECA tax.

Related Resources

• Know how to file business taxes for an LLC here.
• Find out when an LLC should elect S corporation taxation.

How to Become a Successful LLC Manager & Member

Managers and members of an LLC take on a greater responsibility. The following tips can help you balance these roles while avoiding potential complications.

Follow Corporate Formalities

While LLCs aren’t subject to the strict regulations imposed on corporations, they should consider following corporate formalities. This may include regular reviews of certain areas of an LLC’s operations and meetings with co-owners and managers.

Overall, proper LLC governance helps you reduce personal liability for business obligations and document all major business decisions made.

Seek Expert Advice

Little to no expertise on an LLC’s structure and business operations can lead to the company’s failure. If you need help with decision-making, consult trusted lawyers, financial advisors, and tax professionals. These experts will guide you through the complexities of LLC management and membership, ensuring that your business stays legally protected and allows you to build substantial wealth.

Alternatively, consider joining professional organizations or networking with other LLC owners and credible experts. Both are excellent resources for best practices and regulatory changes affecting your business.

Ensure Proper Record-Keeping

Whenever you make a major business decision, make sure to document it and keep copies of the resulting records. They should include documents about the actions you’ve taken as a manager and the decisions you’ve made as a member. You’ll need these records during tax audits, legal disputes, or succession planning.

More importantly, use clear language when documenting important business decisions. It’ll help co-owners and other partners understand these actions and their potential impact on your LLC’s operations.

Frequently Asked Questions

Can I be the only manager & member of an LLC?

Yes, you can be the only manager and member of an LLC. It’s common in single-member LLCs, where their owners gain complete control over ownership and operations.

At the same time, single-member LLC owners reduce personal liability and enjoy potential tax benefits by changing how their business is taxed.

Do I need separate compensation as a managing member?

You may need separate compensation as a managing member.

If your LLC is taxed as an S corporation, it can pay you a reasonable salary for your management services. Do take note that your wages are subject to FICA tax (Social Security and Medicare taxes), although it’s not imposed on other net earnings.

How do I document my roles as an LLC manager & member?

Ideally, you document your roles as an LLC manager and member in an operating agreement. The agreement should outline both in clear language, as it dictates how your business operates.

Learn how to write a comprehensive LLC operating agreement here.

What happens if I want to step down as a manager but remain a member?

If you want to step down as a manager but remain a member, you must follow a formal procedure. Your operating agreement should include this process, detailing the important steps for voluntary resignation and choosing your replacement.

In most cases, you can stop managing an LLC while keeping your share of its profits and losses.

Does Nevada law impose restrictions on LLC managing members?

No, Nevada law doesn’t impose restrictions on LLC managing members. Their roles should be properly documented and performed under state law.

Let’s say your daily tasks include filing annual reports. In this case, you must meet Nevada’s due date for this requirement.

Can I sell my stake in an LLC if I’m working as a managing member?

You can sell your stake in an LLC if you’re working as a managing member. However, the process can be complicated, as buyers might reject your deal. Your operating agreement should outline how the ownership interests of managing members are sold.

Can managing members be held personally liable for an LLC’s obligations?

Yes, managing members can be held personally liable for an LLC’s obligations.

If a legal court determines that an LLC failed to follow corporate formalities or operate independently from the owners, it’ll “pierce the corporate veil.” In short, you’ll face personal liability for any of these actions.

How should I document the decisions I’ve made as a managing member?

You should document the decisions you’ve made as a managing member in written resolutions, meeting minutes, or other formats. This way, you ensure a properly governed LLC, maintain its legal protection, and provide third parties with clear records of your business information and decisions.

Can I appoint a temporary manager while remaining the sole member of my LLC?

Yes, you can appoint a temporary manager while remaining the sole member of your LLC. Your operating agreement should outline the authority, duration, and limitations of the temporary manager’s role to avoid confusion and keep you in control of the LLC’s operations.

Does being a manager & a member change how my LLC is taxed?

Being a manager and a member doesn’t change how your LLC is taxed. However, it may affect your taxable income.

If you own an LLC taxed as a sole proprietor (“disregarded entity”), you’ll pay self-employment tax on your net earnings. But if you elect S corporation status, your salary will be subject to this tax.

Expert Tips From NCH

1. Consider the advantages and disadvantages of member-managed and manager-managed LLCs. You’ll need to update your Articles of Organization and operating agreement if you switch to any of these structures later on.
2. Review your operating agreement annually or before making significant changes to your LLC’s operations. This ensures that your current business structure still meets your specific needs and complies with current regulations.
3. Consider purchasing professional liability insurance for your management activities. It’ll cover the costs of legal claims of professional errors or negligence and payments required by a court’s judgment.
4. Set and implement clear procedures for handling potential conflicts of interest as a managing member. These procedures may include reviews from parties working outside of your LLC.

Steer Your LLC Towards Long-Term Success

You can serve as a manager and a member in an LLC, making you an active investor of the business. However, both roles require your full attention. Your LLC’s operating agreement should clearly define your tasks as a manager and member while protecting the venture’s best interests.

Are you planning to form an LLC and run it afterward? NCH’s business formation experts are here to help you manage your new business.

Talk to Our Experts Today

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.