One of the advantages to forming a Limited Liability Company (LLC) is that it is a more simple form of business than a corporation. LLC law generally has less in the way of rules and restrictions than what is involved when forming a corporation.
There is generally no Board of Directors within an LLC corp, and LLC law does not require that members hold annual meetings. However, this can also cause some confusion within the management structure. This is why it is very beneficial for LLCs to have an operating agreement that will specify the rights and responsibilities of each of its members. Usually, LLC corp management is handled in one of two ways: member managed or manager managed.
In member managed LLCs, all members will have an equal share in the management responsibilities. This is beneficial in running a traditional LLC corp, because all members will have a part in managing the company.
However, this is also where an operating agreement will become necessary. If there is disagreement among the members, it may be necessary to choose one member that will have the ultimate say. Some members may wish to be responsible only for financial matters, instead of running the day to day operations of the company. Although some jurisdictions do not mandate an operating agreement under LLC law, this is another reason why it is important to create one. It prevents conflict in member managed LLCs because it will detail the duties of each member.
Another option is to have a manager managed LLC corp. This means that one member, or a small group of members, will be responsible for the management duties. These members can simply be appointed, or if there is a large group of members within the LLC corp, they can choose to vote. LLC members may also choose to hire outside management. A person outside of the company can be hired and paid a set salary to handle certain management tasks.
An LLC manager will have several responsibilities. One of the most important is to maintain the concept of "separate entity" of the LLC corp. This will ensure that the LLC will be taxed correctly. LLC law allows for these businesses to engage in pass-through taxation, which is one of the major benefits. A manager will also be responsible for ensuring that the business meets all the requirements of LLC law.
This means that they must renew their certification at the necessary times, and ensure that funds are being used appropriately. There may also be several other duties that are laid out in the operating agreement.