Management: who runs the company and who can sign its name

After the money comes the power. The management clauses answer two questions that sound identical and are not: who decides for the company, and who can bind it. The first is internal, a matter between members. The second faces the world, and the gap between the two is where this section’s trap lives.

What the clauses do

The headline clause throws a single switch: member-managed or manager-managed. Member-managed means the owners run the company directly, every member an agent of the business, which fits the two-person shop where both partners work the counter. Manager-managed separates ownership from control: one or more managers, who may be members or outsiders, hold the operating authority, and the other members hold their economics and their votes on the big questions but cannot sign the company’s name. Every structure on this site that splits the money dial from the control dial runs through this switch: the family LLC’s parents are managers, the syndicator is a manager, the passive investor is a member and nothing more.

Beneath the switch, the section does three more jobs. It can create officers, titles like president or CEO with defined authority, useful mostly because banks and counterparties expect them. It sets authority limits: the list of major decisions no manager takes alone, member consent required, typically selling substantially all the assets, borrowing beyond a stated number, admitting a member, or amending the agreement. And it covers succession and removal: how a manager is replaced or removed, and by what vote.

What silence costs

Say nothing and in nearly every state the default is member-managed with equal agency: each member holds the power to act for the company and, as the world sees it, to sign on its behalf. For the two-partner shop that default is roughly right. For everyone else it is quietly radical. The four-sibling family LLC where one sibling runs things: under the default, all four can bind the company. The company with a 10 percent working partner and a 90 percent funder: the default hands them identical agency. Silence does not produce no management structure; it produces the most permissive one, in which the member you trusted least on the day you signed can commit the company to a lease the day after.

The defaults on removal are their own cost. Many statutes make replacing a manager or overriding a member’s agency harder than the members assume, or say nearly nothing, and the first time a company needs to strip authority from someone is the worst time to learn the procedure was never written.

The real options

Member-managed, kept deliberately, fits one situation well: few members, all active, all trusted with the signature, and it has the virtue of matching how small partnerships actually behave. The drafting still earns its keep through the major-decisions list, so that even among equals the sale of the business or a six-figure loan needs everyone.

Manager-managed with a member as manager is the workhorse of everything else, and the pattern most pages on this site quietly assume. The active owner gets clean, exclusive operating authority; the passive members get protection through the reserved list rather than through day-to-day veto power. The craft is calibrating that reserved list to the company: a dollar threshold for borrowing that fits the balance sheet, consent rights on the events that actually change the deal, and nothing so broad that the manager must call a vote to buy a printer.

Manager-managed with outside managers or an officer structure fits companies with real scale, institutional investors, or a hired executive, and by then the drafting has left template range entirely, because authority and removal terms for a non-owner executive are negotiated documents.

The trap

The trap is believing the agreement’s limits are visible from outside. They are not. A manager who signs a contract the agreement forbade usually binds the company anyway, because the outsider on the other side sees a manager, has never read your operating agreement, and is entitled to rely on the authority the role appears to carry. The company’s remedy is a claim against the person who overstepped, which is a lawsuit against your own partner instead of an escape from the deal. The same physics run in reverse when authority is revoked: the removed manager, or the member of a company that quietly switched to manager-management, can keep binding the company with anyone who reasonably still believes in the old authority.

So the fix is never drafting alone; it is drafting plus broadcast. The banks get updated signature cards the same week authority changes. Counterparties who dealt with the old signer get told, in writing. States that record management structure on the public filing get an amended filing, and the filing and the agreement must say the same thing, because a public record that contradicts your agreement is a gift to whichever side of a dispute your agreement hurts. Internal law binds the family; only what the world can see binds the world.

The state-by-state defaults behind this section will get their specifics on this site’s state pages.