LLC Operating Agreement Template
Member-Managed vs Manager-Managed LLC: How to Choose and What Your Operating Agreement Must Say (2026)
About 90% of small LLCs are member-managed. But the 10% that choose manager-managed need specific operating agreement language to define authority, liability, and banking access. Here is how to decide and what to write.
Side-by-Side Comparison
| Dimension | Member-Managed | Manager-Managed |
|---|---|---|
| Daily Authority | Every member can make day-to-day decisions | Only designated managers can act |
| Contract Signing | Any member can bind the LLC | Only managers can bind the LLC |
| Bank Access | All members are authorized signatories | Only managers are authorized signatories |
| Liability Exposure | All members are agents of the LLC | Only managers carry agency liability |
| Investor Appeal | Low (investors want passive role) | High (investors can be passive members) |
| Complexity | Simpler to operate | Requires more documentation |
| IRS Implications | No difference in tax treatment | No difference in tax treatment |
| State Default | Default in most states | Must be specified in operating agreement |
| Best For | Small partnerships where all owners work in the business | LLCs with passive investors or outside management |
| Typical Business | Service firms, small partnerships, family businesses | Real estate investment, venture-backed startups, fund structures |
Member-Managed: How It Works
In a member-managed LLC, every member has equal authority to conduct business, sign contracts, open bank accounts, and make daily operational decisions. This is the default structure in most states and the simplest to operate.
Pros
- Simplest structure. Less paperwork and documentation.
- Every owner has a say in daily operations.
- Default in most states, so no special language needed.
- Banks and vendors understand it immediately.
Cons
- Any member can bind the LLC, even without the other members' knowledge.
- Potential for unauthorized transactions and disagreements.
- Not suitable for LLCs with passive investors.
- No clear hierarchy for day-to-day decision-making.
Manager-Managed: How It Works
In a manager-managed LLC, one or more designated managers (who may or may not be members) run daily operations. Non-manager members have no authority to act on behalf of the LLC. This creates a clear separation between ownership and management.
Pros
- Passive investors can participate without operational liability.
- Professional management by experienced operators or outside managers.
- Clear authority structure prevents unauthorized actions.
- Preferred by venture capital and angel investors.
Cons
- More complex operating agreement required.
- Non-manager members may feel disconnected from the business.
- Manager removal provisions can be contentious.
- Must be explicitly stated; member-managed is the default.
State Default Rules
If your operating agreement does not specify a management structure, your state's default applies. Most states default to member-managed, but you should specify explicitly to avoid ambiguity.
| State | Default Structure | Statute |
|---|---|---|
| California | Member-managed | Cal. Corp. Code Section 17704.07(a) |
| New York | Member-managed | NY LLC Law Section 401 |
| Texas | Member-managed | Tex. Bus. Org. Code Section 101.251 |
| Florida | Member-managed | Fla. Stat. Section 605.04074 |
| Delaware | Member-managed | Del. Code Title 6, Section 18-402 |
| Illinois | Member-managed | 805 ILCS 180/15-1 |
| Georgia | Member-managed | O.C.G.A. Section 14-11-304 |
| North Carolina | Member-managed | N.C. Gen. Stat. Section 57D-3-20 |
| Ohio | Member-managed | Ohio Rev. Code Section 1706.41 |
| Pennsylvania | Member-managed | 15 Pa.C.S. Section 8847 |
Banking Implications
Banks handle the two structures differently for signatory authority. When you open a business bank account, the bank reviews your operating agreement to determine who can sign checks, authorize transfers, and access the account.
Member-Managed: All members are presumed signatories
Banks typically require all members to be present for account opening. Each member gets full account access.
Manager-Managed: Only managers are presumed signatories
Banks may restrict account access to designated managers only. Non-manager members may need separate authorization for account access.
Liability and Authority Differences
In a member-managed LLC, every member is an agent of the company. This means any member can bind the LLC to contracts, loans, and obligations. If a member signs a contract the other members did not authorize, the LLC may still be bound by it.
Switching Between Structures
You can change from member-managed to manager-managed (or vice versa) by amending your operating agreement. Common triggers for switching:
- Growing the membership: Adding passive investors often requires switching to manager-managed.
- Hiring professional management: Bringing in a non-member CEO or COO as a designated manager.
- Simplifying operations: Switching from manager-managed to member-managed if all members are now active.
- Dispute prevention: Restricting one member's authority after unauthorized actions.
See the amendment template for changing management structure
Which Structure Fits Your LLC?
All owners work actively in the business?
Choose member-managed. Simpler, lower overhead, all owners stay involved.
Some owners are passive investors?
Choose manager-managed. Passive members are protected from operational liability.
Hiring a non-member to run the business?
Choose manager-managed. The hired executive is the designated manager.
Single-member LLC?
Always member-managed by definition. The sole member is the sole manager.
Real estate investment LLC with limited partners?
Choose manager-managed. The managing member operates the property; limited partners are passive.