Wednesday, September 21, 2011

Management of the LLC: Member or Manager?

As I have noted in previous posts, New York law allows the members of a limited liability company (LLC) a great deal of flexibility in drafting the Operating Agreement.  And, if you do not take advanatage of this flexibility, you may end up with an unfavorable management structure.  Under the New York Limited Liability Company Law sections 401 and 408, an LLC can either be member Managed or Manager Managed.  These are very different:

               1.  Member Managed:   In a Member Managed LLC, any member has the power to bind the LLC, open bank accounts, and make management decisions.  NYLLCL section 401.

               2.  Manager Managed:  The entity is managed by a manager appointed by the members.  NYLLCL section 408.

Unless you include a provision in the Operating Agreement, under New York law the LLC will be deemed to be member managed, giving each member the authority to bind the LLC.

Whatever, you prefer, make sure you consider the proper management strucure for your LLC, and include a provision in the Operating Agreement addressing this issue.

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