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Maryland LLC Management Structures
Section 4A-402(a)(1) of the Maryland LLC Act provides that an LLC Operating Agreement may regulate and establish the manner in which the business and affairs of the LLC are managed. Types of management structures include member-management (either by all or by classes of members) or manager-management, which permits non-members to control the day-to-day operation of the company in either a general partner-like or corporate board-like management structure.There are many ways to structure the management of an LLC. At one end of the spectrum, the LLC may be organized so that all members have the right to take part in decisions. At the other end, the LLC may be structured so that all decision-making authority is reserved to a single manager. In between, there are innumerable other forms that the management structure may take. For example, in an LLC managed by members, ministerial authority can be delegated to a manager(s). in the alternative, certain decision-making authority could be delegated to a manager and certain other authority could be reserved to the members.
Member management. In a member-managed LLC, each member has the right to participate in management decision-making and to sign contracts on behalf of the LLC. A member-managed single-member LLC whose member is an individual generally resembles a sole proprietorship in which the owner is also the sole manager. A member-managed single-member LLC whose member is an entity resembles a division formally managed by the entity that owns it. A member managed multi-member LLC resembles a general partnership in which each partner has management rights. It is likely that all members will take part in management only in very closely held LLCs.
Manager management. In a manager-managed LLC, the management of the LLC is reserved exclusively or in part to specifically appointed individuals or entities.
Because some type of management authority often will be delegated, a basic question is what to call a person who is authorized to take action on behalf of the LLC. The Maryland LLC Act uses the term "Authorized Person" for this purpose. "Authorized Person" is defined in Section 4A-101(b) of the LLC Act as any individual or entity, whether or not a member, who or which is authorized by the articles of organization, the operating agreement, or otherwise, to execute or file a document or to otherwise act as an agent of the LLC.
Many LLC statutes use the title "manager" to denote anyone who has been delegated authority by the members. Because a person to whom authority is delegated may take on any number of roles, the Act does not require that a specific title such as "manager" be used. however, titles should be used with caution to avoid implied or apparent authority where no such authority exists.
In a manager-managed single-member LLC whose member is an individual, the member should normally appoint himself or herself as the manager of the LLC, and, for continuity of management, the member should appoint another person (often a spouse or other trusted individual) as an assistant manager in case the member is unable to manage the LLC because of disability or death. These single-member LLCs generally resemble sole proprietorships in which the owner is the manager but has an assistant manager.
In a manager-managed single-member LLC whose member is an entity, the member usually appoints individuals to manage the LLC on its behalf. In manager-managed multi-member LLCs, the members as a group appoint or elect one or more members or, in some cases non-members, as managers. Members who are elected managers are referred to as manager-members and those not elected are non-manager members.
Manager-managed multi-member LLCs, from a managerial viewpoint, resemble limited partnerships in which only the general partners have management rights and the limited partners are largely passive. As will be clear from the discussion above, member-managed LLCs have a single level of management, while manager-managed LLCs have two levels. In a member-managed LLC, each member is, in effect, simultaneously a shareholder, director and officer. In a manager-managed LLC, all of the members are, in effect, shareholders, and the managers are, in effect, both directors and officers.