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are you thinking about setting up an llc but aren't sure whether to choose manager managed or member managed for your management style well stay tuned because in today's video we're gonna break it all down for you everything you need to know to make the right choice for your llc let's do this hey there my name is jim hart i'm the founding attorney here at hawthorne law where we help you the online business owner get your legal house in order so you can focus on what you do best and that is building a business that truly matters today we're talking to you about the differences between member managed and manager managed llc's if you are an online business owner who is thinking about forming an llc or maybe you already have formed an llc then chances are you're a little mystified by the idea of forming a member managed versus a manager managed llc not quite sure what the differences are not quite sure if you made the right decision and are really wondering whether the choice that you made is right for your online business now this could be you could be an online coach you could be a course creator you could be an affiliate marketer you could be selling e-commerce products you could be a creator on youtube just like i am whatever it is that you might be doing this is a big serious decision that you need to make when it comes time to form your llc and why can't you figure this stuff out well it's pretty simple really it's because it's complicated it's hard to understand and for most people that aren't lawyers they really just don't know where to start in terms of getting this information other than spending hundreds or maybe thousands of dollars hiring a lawyer to help you and if you mess this step up then you run the risk of getting your corporate veil pierced and there's a whole bunch of bad stuff that can happen if that were to happen you put your personal assets at risk if you were to get sued or if your business were to get sued and it's just really something you don't want to ever deal with so in today's video i want to talk to you about the difference between a member managed llc and a manager managed llc and help you figure out which one might be better for you and your business structure for your online business assuming that you formed are thinking about forming an llc for your online business now before we get into the differences between a member managed llc on the one hand and a manager managed llc on the other i want to tell you that the choice you make when it comes to this decision is really going to depend in large part on the type of business you're running how many members you have in the llc and a lot of other factors that are somewhat beyond the scope of this video but in a nutshell here's the difference a member managed llc is exactly what it sounds like it is an llc that is managed by the members so whether you have one member or 50 members they're all going to have an equal say and equal vote in the management of the llc and what this means is that if you want to do anything with regards to your llc any types of decisions you want to make whether it means switching into a new business area or investing in some software or buying some property or assets for the business or moving to a new business location or anything like that you have to have consensus with all of the members of your llc now if it's just you and you're a single member llc this isn't going to be such a hard thing because you just have a meeting with yourself you decide that's what you want to do and you go ahead and make the change but if you have two three four five ten people that are all members of the same llc you have to get a consensus between everyone before making any major decisions related to the management of your llc on the other hand a manager managed llc means that you have one person or entity that serves as the manager of your llc and they're the ones that are going to make all the decisions so this is a really great option if you are forming an llc where you might be working with somebody else who's going to be providing a lot of capital for the llc but you're the one that's going to be doing all the sweat equity and controlling the operations of the business so the other person might just want to give you some money and have you manage the business and they might want to have a very passive role versus you're the one who's going to be taking that money investing it and building the business with existing systems that you might have from from your prior experience but maybe you just don't have the capital to build the business and in that situation you could serve as a member and the manager and you could control all the day-to-day operations of the business the other situation where a manager managed llc might make a lot of sense maybe you're a solopreneur right now but you intend to bring in a lot of other members for your llc in which case you want to still retain that control over the llc so you would want to be the manager or let's say for estate planning purposes you may want to give away some of the interest in the llc to your children or to a spouse or to someone else and you still want to retain control in those situations a manager managed llc is going to be the way to go now here in north carolina where i practice law the default provision in the llc act is a manager managed llc so you can be a solopreneur and you can be a manager managed llc or you can be a member managed llc it doesn't really matter if you're a solopreneur where it does matter is when you start to have partners and other people involved in the day-to-day operations of the llc if you're the one that wants to retain all the control over how the llc is managed on a day-to-day basis then a manager managed llc may be the right way to go now there are some other considerations that you need to be aware of when deciding between a member managed and a manager managed llc and some of them might be the fact if you're looking to form an llc that's going to provide some level of anonymity to you or to the members of your llc then a manager managed llc may be the way to go again that's somewhat beyond the scope of this video also if you want some more credibility when you're dealing with with other vendors or banks or people that you might be purchasing assets from in the name of the llc then maybe a manager managed llc might be the way to go in addition there's also liability considerations when it comes to choosing a member managed llc versus a manager managed llc and if if run correctly the manager managed llc may be more difficult to pierce that corporate veil than a member managed llc if you'd like to learn more about llc's and the different mistakes people make when forming their llc's here's another video i've done right here i'll look forward to seeing the next video have a great day folks we'll see you soon
Thanks for your comment Elden Elquist, have a nice day.
- Leanne Arteaga, Staff Member
hey guys clint coons here and in this video we're going to talk about the difference between using a manager managed llc versus a member managed limited liability company for your rental real estate okay now if you don't know what the difference is between a member manager and a manager managed llc it has to do with how the llc is set up so when you form a limited liability company you have the option to set up an llc as either member managed all right or manager managed and what that means is this if i was creating an llc here and i set it up as a member managed llc then the actual members of this llc that i'm setting up have all the decision making authority so they decide what's going to go on if we want to buy a piece of property then the members are deciding how that deal is going to play out and the members are signing on all the agreements if you're going to rent the property out you're self-managing right then the members are dealing with the tenants like this to lease the property so in a member managed llc you've got the members controlling it and a manager managed llc we're deciding now we're not going to have the members control we're going to appoint a manager up here to be in control of the llc and then the manager is going to be the one who deals with the tenants and deals with the insurance company and all the other parties that have to do with your llc and the real estate that it owns now the managers of course can be both of the members of this llc in my example or it could just be one maybe we just assume that this person here is going to be the manager this one doesn't want to do anything on a management level so you can you can pick with a manager managed llc but in a member managed llc all of the members have to be involved in the controlling decisions because that's the way it's set up it states that all the members have control of that limited liability company or a certain percentage uh have the control over the llc so if i'm into real estate then the question is when i'm creating my uh llcs which should i be looking at when it comes to setting these things up well what i always look at and i ask people is it how much of your information do you want disclosed do you want people to know that or do you care if they know if you own the llc or not because if you're looking for a structure whereby you have anonymity so that people don't realize or your tenants don't realize that you're the owners of these limited liability companies then you're going to be setting up member managed llc's for your entire portfolio now what i mean by that is you're going to set up a member managed llc where the member's in control and the important thing here to know is that with the member managed llc is that the member's information is going to be listed with the secretary of state that is when you make the filing if i was setting this llc up in washington state and i indicate that it's going to be member managed then washington state will ask me who is the member of this limited liability company as the member manager so if i want anonymity then i sure as heck don't want to do this put myself on there as the member and list myself there because that doesn't give me any anonymity if you look at this llc you see these people down here so instead what we're going to do is create that wyoming holding llc that i like to draw here this is the first entity we're going to set up right here this wyoming llc and it's going to be the member of our real estate llcs so when we're creating this type of structure we're going to set up member managed llc so all of our real estate llcs will be member managed and they're going to be member managed by one member which happens to be this one wyoming llc so when you set this wyoming llc up i can have as many different member-managed llc's that i want to create all pointing down to this one company right here this gives me anonymity now what is the drawback to doing this type of structuring okay setting these llc's up this way well if you're going to apply for lending you want to work with lenders then this can add some complexity to your overall structure because when they look here and they see this entity and then they look at this entity and they don't see anything because you set it up in wyoming if you watch many of my videos i talk about the benefits of using wyoming that they don't collect any information so no one knows who've involved then it can be a problem in trying to get that loan through underwriting or working with title now for residential real estate this typically isn't a concern because you're not going to be obtaining a loan in the actual llc you have to get in your own name because most of them are underwritten by freddie or fanning but if you're working with a community bank and they are willing to write a portfolio loan for you or give you a portfolio loan on these properties so you're going to actually close in the llc then what you'd want to do is first have this discussion with them i tell my clients this all the time when they come to me and i'll get an email or phone call hey what should i give the lender like i don't know why don't you pick up the phone and call the lender and ask what the lender wants to see because every lender is going to be different and that's why you should have this conversation ahead of time if you want to use this type of structure then you should be in communication with your title company your lender that you work with so they become familiar with what you're doing and they have that level of comfort then to understand how this is all coming together some things that will come up on occasion is you may need a an attorney's letter i've done this before i've issued out a letter to title for closing the gift to escrow that yes i could attest to who the actual person was that owned the wyoming llc and that's all they needed then to go through closing and the reason why we had to do that is because all of these llcs were member managed by this wyoming llc of which you know my client is down here he owned this and escrow title they couldn't see any of that because of the protection we provided them so they wanted the attorney to go on the line and say yeah it's really this guy so member manage great if you want anonymity but it adds that additional layer of complexity if you're trying to obtain loans in the llc now if that doesn't matter to you and you're not going to be you're not concerned about anonymity and you just want to set up an llc where it's going to give you the most flexibility as far as dealing with third parties then i would consider using that manager managed llc because when that entity is set up and you set up the manager managed llc again the state's going to ask for information on who is the manager of your llc and if that's you you're there and you're also the member so you're the manager and you're the member of this company so all that gets disclosed so if i was uh say it was chase bank and you're working with chase to to get get a loan together and you're gonna buy it in the name of the llc it's not residential let's say it'
Thanks ViscoM your participation is very much appreciated
- Leanne Arteaga
About the author
I've studied general relativity at Northern Michigan University in Marquette and I am an expert in mining engineering. I usually feel enraged. My previous job was industrial arts teacher I held this position for 7 years, I love talking about squash and skiing. Huge fan of Patrick Mahomes I practice japanese sword arts and collect plants.
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