Management of LLC

A short discussion of some of the issues LLC's will be facing in the future.

Management (LLC)

Under the Revised Uniform Limited Liability Company Act ("the Act") Act and the laws of most states, a company is a member-managed limited liability company unless the operating agreement expressly provides that: the company is or will be "manager-managed" or "managed by manager," or have management "vested in managers" or similar language.

A person need not be a member to be a manager, but the dissociation of a member that is also a manager removes the person as a manager. If a person who is both a manager and a member ceases to be a manager, that cessation does not by itself dissociate the person as a member.

In certain states the certificate of organization may provide, or may be required to provide, that management of a limited liability company is to be vested, subject to the provisions in the certificate of organization, in one or more managers. In Pennsylvania, if a limited liability company is to be managed by one or more managers, they shall be named in or selected in the manner provided in the operating agreement. A manager (1) does not need to be a member of the company or a natural person, and (2) shall serve for a term of one year and until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal.

Under the Act, a manager may be chosen at any time by the consent of a majority of the members and remains a manager until a successor has been chosen, unless the manager at an earlier time resigns, is removed, or dies, or, in the case of a manager that is not an individual, terminates. A manager may be removed at any time by the consent of a majority of the members without notice or cause.

Practice Tip: While the Act provides a mechanism for the selection and removal of a manager, not all states' laws include such provisions. It then becomes critical for the operating agreement to address these issues. In addition, the operating agreement might include a prohibition against a manager withdrawing from such position, but such a provision is likely impractical. Some states, recognizing that a manager cannot be bound to indentured servitude, provide that a manager of a company may resign at any time. However, if the resignation violates the operating agreement, the company may recover from the former manager damages for breach of the operating agreement.

Warning: A person's ceasing to be a manager does not discharge any debt, obligation, or other liability to the limited liability company or members, which the person incurred while a manager.

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