A business has owners and managers. In many cases, these people are one and the same. Who your managers are and how they interact with your owners and the public can make or break your business.
If you’re starting a limited liability company (LLC) or corporation, choosing your managers can be a formal process shaped by business agreements. Let’s take a moment to look at the definition of management for an LLC or corporation.
An LLC’s or corporation’s management, by definition, is responsible for making day-to-day decisions to run the business, such as:
Business managers also normally have access to the business’s accounts.
The owners of LLCs are called members. Members can manage their own LLC, or they can hire non-members to handle the management of their company. A member-managed LLC is often the default.
In many states, you have to let the Secretary of State know on your LLC formation documents if you’re going to have a member-managed or manager-managed LLC.
Whether you choose to have your members run your LLC or hire other managers, it’s important to lay ground rules for your management team. Many LLC members write their business management rules in their LLC’s Operating Agreement. In an Operating Agreement, you can write rules about:
If you don’t write these rules in your own, customized Operating Agreement, you have to follow the default management rules under your state’s law. The state’s default rules are rarely ideal because they weren’t written specifically for your business.
We can help you get an easy jump on writing a solid Operating Agreement for your LLC with our Operating Agreement Template.
Corporations choose boards of directors and corporate officers when they form. The directors and officers are often the ones to handle the daily operations of a corporation. Corporations can also hire employees who aren’t officers or directors to manage the business. Your corporation’s managers can be owners (also called shareholders), or they can be non-owner employees.
You’ll likely have to adopt bylaws after you form your corporation. Your bylaws can contain rules about how to run your corporation and who can run your corporation.
Whether you choose to have owners or non-owners manage your business depends on your specific needs. Non-owner management benefits can include:
The impact of these advantages also depends on whether you’re running an LLC or a corporation.
If management for your LLC is not working out, it can be much harder to get rid of a manager who is also a member than to fire a manager who has no ownership rights. And with corporations, ownership can change so frequently that it’s often easier to have management that doesn’t also own the business.
Whether you’re running an LLC or corporation, good delegation is also key to running a business well. Business owners might find it easier to have others handle daily operations while they grow the business and protect their interests.
A potential disadvantage of non-owners running your business is that they’re normally not as invested in the success of your business as an owner would be. It can also be hard to find managers who work well with ownership to achieve business goals.
Your business’s management definition can change depending on whom you choose to be your managers and what business agreements you put in place. Your managers can be responsible for as little or as much as you decide, and they can be owners or non-owners. There can be many advantages and disadvantages to who you choose as management and what rules you put in place for them.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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