When setting up a business, specifically a limited liability company, an LLC hierarchy structure can benefit the organization by allowing its members to assign ownership, place boundaries, and manage the corporation’s expectations for the future.
As soon as LLC officer titles are decided, members can use an operating agreement to establish the bylaws of the company and ultimately guide it moving forward. There is less formality in running an LLC, so an LLC leadership structure is equally simple.
What Are the LLC Hierarchy Titles?
An LLC primarily consists of two corporate hierarchy titles: its members and managers. As such, there are two possible types of LLC business structures: member-managed and manager-managed.
Ownership in an LLC is represented by membership, and an owner is titled a “member.” In this type of LLC hierarchy structure, all members have the right to participate in the day-to-day operations and responsibilities of the company. Members likewise have the power to bind the LLC in business transactions.
For instance, if a member decides to sign an official document on behalf of their organization, a member-managed LLC obligates that all members must honor the terms of said agreement.
A member-managed LLC is likely suitable for an enterprise, provided the business meets the following conditions:
It is small and, therefore, has limited resources.
It has a small number of members.
Its members have sufficient management experience and wish to be active in operational decisions.
There can be an unlimited number of members in a manager-managed LLC hierarchy, and members can even select non-members to enforce company policies on their behalf. However, this structure makes the manager the main person to run most of the business affairs of the company. The manager of an LLC corporate structure hierarchy is also the contact person for the business and deals with the public.
In this type of LLC business structure, members can still make major decisions but cannot interfere with the manager’s operation of the business beyond replacing the manager or converting to a member-managed LLC hierarchy structure.
A manager-managed LLC would be the most suitable for an enterprise, provided said business meets the following conditions:
The business is large and, therefore, has a complex system of responsibilities.
Its members lack sufficient management experience and don’t wish to be active in operational decisions.
The LLC Hierarchy vs. A Traditional Corporation
When using an LLC corporate structure hierarchy, an organization can be managed by its members, a manager, or even a group of managers, depending on the inclinations of the majority. The company may also choose not to recognize the distinction between its owner and the manager of the business, separating their given responsibilities. Because of this notably flexible management structure, the LLC hierarchy is often viewed as a less formal system, making it ideal for some entrepreneurs.
On the other hand, a traditional management structure of corporations is much stricter, as it is often headed by a board of directors that oversees and handles the management responsibilities of generating profits for its shareholders. Like an LLC’s manager, corporate officers handle the everyday operations of the business, and the shareholders are considered its owners. But at the same time, the latter remain separate from business decisions and overall operations, except in extreme cases involving the future of the corporation.
Final Thoughts on the LLC Hierarchy
Ultimately, deciding between an LLC hierarchy and a traditional corporate management structure depends on the size and specific needs of your business. If you’ve firmly decided on an LLC hierarchy structure, you will then have to discern which type best matches the type of members you will be working with.
Are you ready to establish your LLC business structure? With our business experts at NCH, we can provide you with professional advice and assistance, as well as make certain that all your documents are filed properly. We are a leading provider for the formation of Nevada LLCs and Corporations. Book a consultation with us today, or visit our website to learn more about our services!