july2021 - 23

FEATURE
THE DIFFERENCE BETWEEN
MEMBER-MANAGED AND
MANAGER-MANAGED LLCS
The owner of the single-member LLC
is also considered the manager. In a
multi-member LLC, the members must
stipulate whether the LLC will be member-managed
or manager-managed.
In a member-managed LLC, all
the members agree to participate in
the operation and decisions of the
company. The majority of owners
must agree when making important
company decisions, including signing
contracts and applying for loans. If
an LLC does not stipulate otherwise,
the state considers the LLC membermanaged
by default.
Multi-member LLCs can choose to
appoint a manager (or managers) to
run the entity. In a manager-managed
LLC, one or several members can be in
charge of daily operations and making
company decisions. Other members
of the LLC can participate or have a
passive role.
The management type and names
✔ Name search
✔ Articles of Organization
✔ Acquire a Federal Tax ID number or EIN
✔ Create an Operating Agreement
of the managers should be outlined in
the Articles of Organization. Document
any specific responsibilities in the LLC's Operating
Agreement.
HOW TO ADD NEW LLC MEMBERS
While adding new members is not a difficult task,
your client should consider all the ramifications
involved. For instance, a new member/s could mean
a new source of working capital and/or additional
strategic expertise. However, the percentage of
ownership of all current members is reduced, and
it may be harder to make company decisions with
more voices wanting to be heard. Before adding new
members, advise your client to think through all
possible advantages and consequences.
Next, the LLC members need to review the
previously agreed-upon procedure in the Operating
Agreement for adding members and check to see
if there are additional state guidelines. Following a
written process proves the company operates as its
own entity. The terms of the ownership structure
dictate what rights and duties the new member
takes on. Make sure your clients document their
decisions.
Finally, all members are required to vote to add
a new member/s and sign any amendment made to
the Articles of Organization/Operating Agreement.
The amendments then get filed with the state
States don't put many restrictions on who can be
a member of an LLC. Members must be over 18 years
old and do not have to be U.S. citizens. Members
don't even have to be a person-other entities, such
as corporations, S Corps, LLCs, and trusts, can be
members.
HOW LLCS CAN RAISE MONEY
An LLC can raise money by offering members a
percentage of ownership interest or LLC membership
units. Members with interests have a stake in
the profits of the LLC and typically have a voting
interest. LLCs are not restricted in distributing
membership, and the amount of monetary investment
does not have to equal the amount of interest
the member receives. Member interests can also be
transferred or sold.
Your client needs to comply with the agreedupon
rules for dispersing member interests outlined
in the LLC Operating Agreement. Member interests
should be consistently summarized as percentages
or units. What will be accepted for member interests
should also be specified (for example, can a member
receive interest only in exchange for cash, or are
member services acceptable?).
Lastly, the LLC must keep all documentation and
maintain good records about member interests in
the Operating Agreement. Membership certificates,
transfers of interests (called Membership Interest
Assignments), and member interest balance sheets
are vital records to keep on hand in case the LLC's
activities are ever called into question.
The LLC is a flexible and beneficial legal structure
your clients should consider when starting or
taking their businesses to the next level. The more
you know about LLC member guidelines, the better
you can steer them to make informed decisions. ■
Nellie Akalp is a passionate entrepreneur, business expert,
and mother of four. She is the CEO of CorpNet.com, a
trusted resource and service provider for business incorporation,
LLC filings, and corporate compliance services in all
50 states. Nellie and her team recently launched a partner
program for accountants, lawyers, and business professionals
to help them streamline the business incorporation
and compliance process for their clients.
JULY 2021 ■ www.CPAPracticeAdvisor.com
23
http://www.CorpNet.com http://www.CPAPracticeAdvisor.com
july2021

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